Global biofuel output to soar in next decade: report

PARIS Thu May 29, 2008 12:20pm EDT

A worker walks by the distillation area at GreenField Ethanol plant in Chatham, Ontario, April 10, 2008. REUTERS/Mark Blinch

A worker walks by the distillation area at GreenField Ethanol plant in Chatham, Ontario, April 10, 2008.

Credit: Reuters/Mark Blinch

PARIS (Reuters) - Global production of biofuels will rise rapidly over the next decade, helped by high government blending targets and subsidies, the OECD and the U.N.'s FAO food agency said in a report published on Thursday.

These rises will boost already soaring world agricultural commodities prices and reduce their availability for food and feed, the Organization for Economic Co-operation and Development and the Food and Agriculture Organization said in co-drafted report.

"With a biofuel output that should more than double over the next 10 years, according to the most conservative estimates, the pressure on agriculture will flare up," Jacques Diouf, head of the Rome-based FAO, told a news conference in Paris.

Global ethanol production was projected to reach about 125 billion liters in 2017, twice the quantity produced last year.

Biodiesel output was set to grow even faster with production forecast at around 24 billion liters by 2017, up from nearly 11 billion at the end of 2007 and less than 1 billion in 2000, the report said.

"Increased blending mandates should stimulate demand and boost international trade in the initial years of the (2008-2017) outlook," the report said.

Biofuels were not blamed directly, as they can increase farmers' revenue both in developing and wealthier economies, but on "distortive" policies in some large producing countries, which encouraged production of fuel-destined crops on land previously devoted to food, they said.

ETHANOL TRADE TO GROW

Biofuels, mainly made of grains, oilseeds and sugar, have been increasingly accused of causing sharp rises in food prices by diverting production away from food and animal feed towards an additive for vehicle fuel.

Protests and riots in many poor countries over high food costs have added urgency to the debate. A sharp rise in biofuels output that would influence food prices could keep the issue high on the international political agenda.

The OECD and FAO stressed that their forecasts did not anticipate changes in the United States and/or European Union policies which widely support the production and use of biofuels through blending targets and tax incentives.

Second generation biofuels, made from domestic and agricultural waste rather than food crops, were not expected to be produced on a commercial basis over the next decade.

Ethanol prices were seen exceeding $55 per hectolitre in 2009 as crude oil prices rose, but should fall back to levels around $52-53 per hectolitre later in the 2008-2017 period covered by the report, as production capacity expanded.

International ethanol trade was expected to grow rapidly to reach 6 billion liters in 2010 and almost 10 billion liters by 2017. Most of this trade would originate in Brazil and would be destined for markets in the EU and the United States, it said.

The growth in biodiesel output would occur despite the fact that world prices were expected to remain well above production costs of fossil diesel, within the range of $104-106 per hectolitre, for most of the projected period.

International trade of biodiesel was seen largely unchanged in following years, notably due to technical constraints in the use of palm-oil based biodiesel in cool climates and as output in the main consuming countries increased.

(Editing by Christopher Johnson)

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