Farmers should brace themselves for a re-ignition of the food versus fuel debate but this time the spark will be an oilseed shortage, says an industry analyst.
Burgeoning global biodiesel demand has tightened vegetable oil stocks. The stocks-to-use ratio is expected to be 10 percent at the end of 2010-11, which is “critically small,” said Thomas Mielke, executive director of ISTA Mielke GmbH, which publishesOil World.
Annual growth rates in vegetable oil demand have doubled since biodiesel became a big consumer of the product in 2005.
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Biodiesel demand is directly responsible for the explosive price response to this year’s oilseed production problems around the world and it shows no signs of slowing.
World production of biodiesel rose three million tonnes or 19 percent in 2010 and is expected to jump by a slightly higher amount next year due to rising government mandates.
Mielke said it will become difficult to satisfy demand growth for biodiesel and the food sector in 2011 and beyond.
“I expect that there will be a new debate between food and fuel in 2011,” he told farmers attending a Farm Leadership Council meeting in Saskatoon via a videotaped presentation from his home in Germany.
The problem is that government imposed biodiesel mandates are not flexible during periods of crop shortage.
“This requires demand rationing to a large extent on the shoulders of consumers in the food industry.”
The last food versus fuel debate erupted when corn prices soared in 2007 and 2008, causing tortilla riots in Mexico. The ethanol industry was initially fingered as the culprit by groups like the World Bank, which has since stated the ethanol impact on food prices was not as large as originally thought and that investment speculators deserved some of the blame.
A steadily worsening global vegetable oil shortage could trigger the next debate.
Soybean oil exports from Argentina and Brazil are forecast to fall to 6.2 million tonnes in 2011 from 6.58 million tonnes the previous year, despite a one million tonne increase in soybean production due to rising domestic biodiesel demand.
Europe’s vegetable oil shortage grows every year as the region marches toward its 10 percent biofuel target by 2020. The EU is expected to import a record 10.9 million tonnes of oil in 2010-11 to meet its needs.
This bodes well for Canadian canola producers, as does this year’s European rapeseed shortage. Mielke said the EU needs to import 2.26 million tonnes of rapeseed or canola in 2010-11 to supply its thirsty biodiesel sector.
“We may see crushers of the European Union trying to tender for Canadian canola in several months,” he told farmers.
He is forecasting 300,000 tonnes of canola imports from Canada.
Unless global oilseed production can be substantially increased, Mielke expects to see a reduction in EU biodiesel mandates down the road due to mounting pressure from food consumers.
