Europe produced almost no biodiesel at the turn of the millenium.
Seven years later, the industry consumes 65 percent of Europe’s rapeseed crop and is having a profound impact on Canada’s canola industry.
In addition to being one of the main causes of the run-up in world vegetable oil prices, the emergence of the European Union’s biodiesel sector has created a substantial, yet unpredictable new export market for Canadian canola oil.
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Europe’s biodiesel manufacturers prefer homegrown rapeseed, but when it is in short supply, canola provides a seamless substitute.
While the Europeans are still reluctant to accept genetically modified canola seed, they will take canola oil.
According to Agriculture Canada’s market analysis division, the EU imported nearly 250,000 tonnes of canola oil from Canada in 2005-06 worth $204 million.
“Somewhat lost in the statistics was the business in canola seed that we shipped to places like Dubai and Turkey and even to a certain extent China, where it was crushed and the oil was shipped to Europe for biodiesel,” said Dave Hickling, vice-president of utilization at the Canola Council of Canada.
He estimated another 250,000 tonnes of Canadian canola oil made its way to the EU through that circuitous third country route.
The direct and indirect oil shipments represented an estimated 1.25 million tonnes of seed out of a 2005-06 Canadian crop of 9.6 million tonnes, or 13 percent of that year’s production.
It has rapidly become a big new market for canola, made possible in large part by the narrowing price gap between EU rapeseed and what had traditionally been higher-priced Canadian canola.
Shipments fell in 2006-07 because of a slowdown in European biodiesel production, as Germany, Europe’s largest biodiesel producer, reduced biofuel tax exemptions.
In its July 27 Bi-Weekly Bulletin, Agriculture Canada forecast 160,000 tonnes of canola oil exports to the EU in the last crop year, worth $135 million. Hickling said indirect shipments fell as well.
“Certainly there is no question that it has tailed off, both the direct and the third party, because of the demand situation in Europe,” he said.
What happens in the future largely depends on how EU biodiesel policy unfolds. The European Commission has set a 10 percent minimum for biofuel share of transport fuel by 2020.
The ambitious target led Agriculture Canada to conclude the EU will likely increase its reliance on biodiesel imports.
The European Biodiesel Board predicts the EU could meet 80 percent of the 2020 demand through local cultivation and 20 percent through oilseed imports.
But that is based on European production of oilseed crops rising by 50 percent to more 35 million tonnes, with up to 28 million tonnes coming from rapeseed.
That would be a tall order considering total EU rapeseed production was only 15.3 million tonnes in 2006-07 and cereal crop prices are attractive.
Hickling said there is no doubt the 10 percent mandate will have a big impact on vegetable oil use.
“As to what part of that increase canola gets, I think that one is still up in the air.”
The Canadian canola industry has a goal of increasing production to 15 million tonnes by 2015. The plan calls for one million tonnes of seed to be exported to Europe for biodiesel production. Another half million tonnes of seed will be exported to Europe in the form of Canadian biodiesel.
So the industry is anticipating a total of 1.5 million tonnes of demand from Europe’s biodiesel sector, which is close to the same amount that was shipped there in 2005-06.
“It’s going to be significant but we’re not hanging our hat on European biodiesel demand as being our salvation, our main opportunity growth,” Hickling said.
Oil World analyst Thomas Mielke doubts 15 million tonnes of canola will be produced, especially considering Canada’s rail challenges in getting product to market.
“It’s very unlikely that you can move in the direction of what the Canadian canola association wants or the direction of what the world needs.”
But he thinks 1.5 million tonnes of exports into the EU’s biodiesel industry is about right, although he sees a slightly different mix of products.
“I think we will take more oil and probably slightly less seed.”
