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Vegetable oil prices rest on EU biofuel vote

By Annie-Rose Harrison-Dunn , 09-Sep-2013
Last updated on 09-Sep-2013 at 13:44 GMT

The European parliament's upcoming biofuel vote could dictate future food prices, says the JRC
The European parliament's upcoming biofuel vote could dictate future food prices, says the JRC

Wednesday’s vote by the European parliament on proposed limits for biofuels has the power to determine future prices of food stuffs like vegetable oil, according to a report by the EU’s Joint Research Centre (JRC).

The report comes in response to various EU mandates pressing to increase renewable energy use and reduce the carbon intensity of road fuels by 2020.

Repeated droughts in recent years have put pressure on food prices and put forward the world food security debate meaning the use of food crops to produce biofuels has been criticised.

The more vegetable oil used for biofuel production, the less there is available for food use, leading to a scarcity which drives price inflation.

Possible scenarios

The report lays out forecast consequences for three proposed EU restrictions on the use of crop-based fuels. Firstly by 2020 only 8% of transport fuel will come from biofuels, secondly the EC Directive will be implemented from 2013 and finally the biofuels will receive no EU policy support.

It is estimated that this last scenario will have the greatest effect on food prices. Vegetable oils stand to be particularly affected since more than half of the vegetable oils are used for biodiesel production in the base in 2020. The reports base figures work from projections for a continuation of existing policy measures for the period 2012-2022.

According to the paper the no policy scenario would lead to a “very significant decrease in vegetable oil price because of the strong reduction in total demand for vegetable oil”.

Price hike

“If there is no policy the decrease in vegetable oils use for biodiesel could reach 75% in comparison to the base in 2020. As a consequence, the EU price for vegetable oils could be below the base level by 8%, 17% and 48% in scenarios one, two and three respectively,” said the report.

The report also looked at the individual breakdowns of oils within this group. "The reported world vegetable oils price is a production weighted average of rapeseed oil, soy oil, sunflower oil and palm oil. Rapeseed oil represents much less of the total vegetable oils (around 15%) than in the EU. By contrast palm oil and soy oil constitute close to 60% of the total. Therefore the world price is strongly driven by the food use of these two oils."

Other industries

The report also looked at potential consequences for cereal and sugar beet producers. It found that for cereal price decreases were “fairly small” since in the base only 6% of wheat and 8% of other cereals are used for biofuel production.

Sugar beet would remain almost unchanged, even in the third scenario, as industrial plants dedicated to ethanol production from sugar beet have little possibility of switching production.

In terms of the biofuel industry, a vote in favour of a lower limit could mean that the sector will not have enough time and savings to make the necessary investments in order to switch over to new generation biofuels derived from waste, algae or agricultural residues as opposed to food crops.

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