## Study: Biodiesel Demand Changing Dynamics of Global Vegetable Oil Industry

##### 07 August 2006
 Rabobank sees biodiesel demand accounting for almost half of the increase in vegetable oil consumption by 2010. Click to enlarge.

A new study by Rabobank’s Food and Agribusiness Research group finds that the increasing global demand for biodiesel and other biofuels is driving demand for vegetable oils to historic levels in world markets, leading to higher prices for vegetable oils relative to meals and causing soybean crushers to reevaluate their business models.

The confluence of environmental concerns, high energy prices and government incentives which is fueling demand growth is also driving expansion on the supply side, leading to significant increases in oilseed processing capacity.

Worldwide use of vegetable oils is expected to post growth of approximately 5.5% CAGR between 2005 and 2010, a significant departure from historical rates, reflecting the newly expanded biodiesel application.

Biodiesel is proving to be a significant demand shifter in the overall vegetable oil industry, but the canola and palm sectors will benefit more proportionally from this growth, thanks to their high oil content and the oils’ multiple uses as food and foodstock.

—Alejandro Reca, Executive Director, Rabobank Food and Agribusiness Research group in the Americas

 Production forecast for select veg oils. Click to enlarge.

Dr. Reca expects Canada to capture at least half of the anticipated 300% increase in production and crushing of canola, and Southeast Asian countries to expand palm oil processing by 500%. He also predicts that recent income gains in the global vegetable oil industry will remain strong, since food consumption of vegetable oils should mitigate any potential decline in non-food uses of vegetable oil.

Reca notes, however, that the variance between lower prices for vegetable meals and higher prices for vegetable oils, as well as the increasing competition from DDGs, was causing many soybean crushers to rethink their traditional business models.

Today’s market conditions create the ideal environment for investment in and promotion of alternatives to petrofuels, and biodiesel in particular is attracting significant support on both the supply and demand side. As a result, the growth in the biodiesel market has economic and commercial implications far beyond just the energy markets, from increasing production and creating new trade flows for vegetable oils, to attracting new investors to the agribusiness sector, and ultimately to increasing the integration of global agricultural and energy markets.

—Alejandro Reca

Rabobank is a global bank serving the food and agriculture industry. One of the 25 largest banks worldwide, it has more than $600 billion in total assets and operations in 38 countries. ### Comments I think there is little chance of a decline in nonfood uses for vegetable oil. Not only can oilseeds eliminate the need for farm subsidies they add nitrogen to the soil without synthetic fertiliser. Both the straw and the meal left after crushing the oil can be fed to cattle. Oilseeds like canola can grow in cold climates while the tropics have soybeans as well as tree crops like jatropha, palm oil etc. It's just a shame potential demand far outstrips supply. While byproducts of biofuel production such as DDG (in the case of ethanol) and biodiesel leftovers can be fed to animals, there are limits -- they cannot be substituted into an animal's diet in unlimited proportions. As DDG is often starch-depleted (while rich in fat and protein), and as biodiesel wastes are oil depleted (while richer in protein and starch), they may be able to complement one another, increasing the amount of biofuel byproducts that can be fed to livestock. It is wasteful and immoral to use food to fuel vehicles. A far more sensible way to produce biofuel is to pyrolyze or gasify agricultural waste or biowaste into methane, or into syngas and use FT process for BTL synthesis. The yield would be far higher. "It is wasteful and immoral to use food to fuel vehicles. According to who? According to the people who are starving to death all over the world. C'mon. Biofuels are a better alternative than petrol fuels. Your comments suggest the opposite is true. Yeah, suddenly everyone is starving because of biofuels. Starvation is a serious problem, and of course it should be helped, but the sudden advent of biofuel is hardly the reason for it. Starvation existed before the auto, and it will exist in the future. We can't have it all, and there is no perfect solution. If a developing country wants to devote it's resources to biofuels, who are we to demand otherwise. It seems half the problems the world is dealing with can find it's roots in the West's sancitmonious declarations of what constitutes morality. Renewable fuels are better alternatives than petrol. Biofuels should use agricultural wastes instead of edible produce. Already, natural habitats worldwide are being destroyed to grow crops in massive scale that will disturb the ecosystem. Too much agricultural fertilizer runoff and contamination due to pesticides, with too much water table depletion in semi-arid areas. Solar and wind would be far more sensible in massive scale than dedicated fuel crops. Roger, Neil, Hunger that we see around the developing world is largely due to: a) war and other disruptions to the economies. b) taxes/tariffs and other government policies that hamper food production/importation. c) poverty + lack of economic development/stability. d) natural disasters combined with knee jerk reactions only after people start dying in large numbers. e) waste, we end up dumping large quantites of food. f) inefficient production/usage of food/land; feeding cattle instead of people. There are many, many other reasons. _ ___They may eventually wise up to more productive ways to make edible oil, namely form algae oil/biomass production. If you think about it, 5,000-10,000 ga/acre (with a 10 acre net of >$12,000) could stave off bankrupcy for many farmers in the US, especially near cities, and in poor soil/expensive-scarce water scenarios. Converting barren, not diverse/cactus, desert land could also be another way.

Biofuels may actually help the poor and starving in the world. The indistialized countries currently subsidize thier own crops, but may no longer do so if demand for biofuels is sufficient. That opens markets for other countries. In addition, the crops grown locally can be converted to energy locally rather than depending on a few limited, capital intensive producers of petroleum. That also opens the opportunity to grow crops for energy rather than cutting down trees to burn directly as fuel to cook -- biofuels being stored for the off season. The outcome may not be as dire as one would think.

We have been brain washed to believe that we must get the energy needed for industries, homes, transportation etc in liquid fuel format from, oil, coal, food and non-food crops.

At current and future consumption rate, it is easy to forecast that energy from food crops will eventually put too much pressure on the ecosystem and we will all suffer the consequences within a few decades.

The common sense solution would be to reduce our energy consumption by 70%+ by using it more efficiently and by replacing most liquid fuel energy with clean electricity from hydro, sun, wind, waves and even up-to-date nuclear plants.

A few exemples:

1) Change our 6 to 10 SEER AC for 21+ SEER AC units.
2) Change our 10 to 25 mpg mpg vehicles for 100+ PHEVs.
3) Change all traffic lights, brakes lights and signal lights +++ with LEDs
4) Change all CRT and Plasma Monitors & TVs with LCDs and SEDs without standby modes.
5) Electrification of freight and passenger railways.
6) Replace all short distance flights (below 1000 Km) and all inter-city buses with high speed electric passenger trains.
7) Move long haul trucks trailers and containers on electric railroads.
8) Use wind and sun energies for ships.
9) ETC ETC

All cogent arguments. It would seem that energy in renewable form is the goal. Immediately we have millions of diesel engines that empower the petro industry which reaps windfall profit with minor reinvestment in alternatives or community. Biodiesel is renewable, low in pollutants, simple to produce and returns revenue to entirely new markets: farmers big and small, third world ag business, start-up refineries. Revenue in the hands of global villagers empowers them to buy food and grow economies.

Just as the hybrid is a bridging technology demonstrate viable electric cars, biodiesel bridges us out of petro into a renewable right now. It gets us into sustainable thinking faster than speculation on all the potential alternatives. Wind, solar, wave, geo, all play a part along the way. H2 from bioreaction seems logical for clean H2 production. Diversity in energy resources is just as valuable as diversity in community. The more choices we have the less the monolithics can dictate.

I think it´s untrue the idea that the non-food use of vegetable oil is immoral, according to a message posted above.
The oil used to produce fuel is not the same that was going to feed people. The causes of the poverty in the world are others.
Yet, this new industry create employment in the non-specialized sector of agricultural and furthermore create an enviromental virtuous cicle because the emissions from biodiesel are captured on the farm.

If vegetable oils normally used for food are used as fuel, the reduced vegetable oil supply will cause an increase in global food prices.

There may or may not be more farm jobs created depending on how much extra farm help is needed. If the farmers have some idle capacity they may not need to hire many more workers. I also wonder who the farmers sell to. Do they get a fair percentage of the profits from selling their seeds for oil processing, or does the bulk of the profit go to the oil processing companies?

While biodiesel is a good step in reducing fossil fuels it still does not address the need to get away from using non-renewable resources. Growing plants requires so much water, that if farming were scaled up to meet the full demand for fuel there would not be enough water. The fertilizers needed to grow the plants are also non renewable. So while farming may appear to provide a renewable energy source, it uses many nonrenewable sources to be successful.
I see biodiesel as a way to get the public to at least be aware about getting away from fossil fuels. There is a paradigm shift happening away from fossil fuels, and many people are just now realizing and admitting that gasoline prices will not go down and stay down much below current price levels. Fossil fuels will not meet the world demand. The only solution that will last the test of time will be renewable energy sources.

If all the money, time and human energy currently spent developing and manufacturing biodiesel, ethanol and other plant based fuels were instead focussed on improving the manufacturablity and efficiency of renewable energy sources the costs would become low enough for rapid adoption of PV solar, wind, and passive solar water heating energy sources.

What we gonna do about all those Amish folks who grow woodlots for fuel instead using all their land for human food. They also devote land to grow feed for horse and oxen just like all farmers did 200 years ago. The food vs fuel debate is so bogus.
If you think biofuels are immoral then don't buy any.

I too am concerned, that merely switching our consumption to biofuels, from petroleum, will lead us down a dangerous path - whereby as petroleum resource become increasingly scare, countries (and governments) with power will demand more biofuels... and therefore, yes, people will be outta food. Of course, add to this the enormous energy requuired to get food to market in the first place.

It is naive to think biofuels will solve our problems. If we do not REDUCE our pattern of consumption, we are achieving little if anything.

Therefore, as much I support biofuels, I far more support us using less energy. That means driving smaller vehicles, like my (bio)diesel smart car, or even better, driving not at all.

I think governments should focus more on increasing fuel economy and penalizing larger vehicles (fairly).

Keith

At \$4.00 / gallon plenty of people will want higher mileage regardless of fuel source. Let's not forget that in the US, we pay farmers NOT to grow - call 'em "subsidies." The expansion of bio-fuels expands food/fuel crops - giving the farmer or big ag two markets. Already pointed out is feedstock by-products' ability to return nitrogen (fertalizer) to the ground. Water is a fixed resource on earth, neither expanding nor contracting - just changing states.

I thought immoral stuff was waging deceptive wars, kidnapping and murder... call me crazee.

I am convinced that BioDiesel with 7% alcohol added is the way to go. The oil can come from many non-food sources.

In fact the most promising oil sources are not food crops.

Another argument against the use of dedicated fuel food crop is frequent problem of crop failure, due to drought, or plant diseases (plant viruses), or to other unforeeable ecological factors. Massive plantation of low-diversity energy crop is a set up for massive epidemic crop failure. When that'll happen, then may be you won't drive and a lot of us may even starve. And, if you depend on biodiesel for agricultural machineries, and you have biodiesel crop failure, well, may be you won't farm either.

By contrast, massive deployment of solar collectors in desert areas and wind turbines in the great plaines will be much more reliable sources of renewable energy. Is there any season that the sun quit shining (in the desert)? or the wind quit blowing?

Solar and wind energy have nothing to do with liquid transportation fuel. Same with nuclear, hydro, coal, and NG. Without viable carrier (like currently hypotetical hydrogen or battery electric), we can flood the country with wind turbines and still will have to buy oil for our cars and trucks. I am kind of tired to repeat this weekly.

Roger,
You do make a good point about crop failures. One nightmare scenario is bioterrorism, in which countries are crippled due to multiple crop failures brought on by bred/modified mold/bacterium/virus. Think of the variety/ biodiversity of the our current crops. Remember the Irish Potato Famine?
_
___There is another disturbing possibility, the usage of crude oil loving microorganisms to destroy global conventional petroleum supplies.

The real soution is a combination of all of the above proposed solutions. I predict that there will be Diesel Hybrid vehicles available in the next 3-5 years that will run on electric only for the first 10-25 miles of use, allowing for daily city commutes to leave the diesel engine unused. Milage on Diesel power for a small to mid sized sedan, like a VW Jetta should easily be above 60 mpg, as they are already in the 50 range right now.

There are lots of ways to use wind and solar to generate electricity that can be stored. An easy way is to use them to pump water to a higher elevation and then use the flow of the water back to the lower elevation, which is easy to control, to generate the power for the grid. Then this power can be used to recharge the Hybrids mentioned above at night.

For home heating in cooler climates, solar heated fluid pumped through lines in the slab foundation (i.e. basement) of homes will continue to radiate heat all night long. The concrete is a greate heat sink to store that energy captured in the daytime. This works, even in the cloudy and overcast Pacific NW of the U.S.

These are just a few examples, it has to be a "many solutions" approach. The problem has been that in the past these solutions didn't make sense given cheap energy that we had. Now, things like solar heat and hybrid cars are financially beneficial , so they will become more commonplace.

W

How ironic it is that alcohol was prized like gold during the prohibition era, and now we burn it in vehicles. Regarding oil from the food supply, how misguided it is that cotton plants, governed as a non-food crop, can be sprayed accordingly with pesticides. Then, the byproduct seeds are crushed and utilized in the food industry - have a look at your tortilla chips... and see "cottonseed oil". In a marketing tatic of the "optomistic consumer" when it says "may contain canola, corn or cottonseed oil" we hope it this food item didn't use the lowest cost oil, but in the end, all they had to do was include a token amount of the other oils to print that statement.

This whole Bio Fuel will take food away from the hungry is total CRAP ! This is pure propaganda by the petrol industry to maintain market share and dominate the world financial markets as part of the new world orders plan for global domination , they will say or do anything to maintain that . Wake up we subsidize millions of acres a year in this country {USA} alone to not have crops grown on them to keep the food prices artificially high , and ton s and tons of food sit in storage all over the world controlled by greedy people that manipulate world governments with food , there is PLENTY of food on this planet . Wake up do some research . And of course go within for your truth . Hemp could also be used for bio fuels , good for the soil and livestock , come on don't be fooled . Peace.

The big oil companies are jerking are chains again , there is plenty of food on the planet , it is kept from certain countries because of there unwillingness to play ball with the new world order boys that control the central banks of the world, and most governments , and now they are trying to demonize the bio fuel industry , it scares the hell out of them , just like Ron Paul does !!!!!!!!!1

The comments to this entry are closed.