The Hindu Business Line : Oilseeds likely to benefit from boom in bio-diesel

AS world interest in eco-friendly renewable sources of fuel expands rapidly, more oilseed production or vegetable oil consumption is going towards bio-diesel.

This trend has implications for world vegetable oil production and prices in the coming years. Emulating the world's largest bio-diesel producers and consumers — European Union and Brazil, several developing countries have ventured into bio-diesel production using indigenous plant material.

While world production of oilseeds and palm oil is forecast to expand in 2004-05 to 379 million tonnes (mt) and 29.8 mt respectively, consumption too is forecast to grow.

Until recently, a significant part of the increase in vegetable oil consumption was for edible purposes and to a lesser extent for industrial uses such as in soap and related others.

Bio-diesel is now seen increasingly becoming a notable component of the rising demand for vegetable oils. The industry converts approximately one tonne of vegoil or animal fat into one tonne of bio-diesel for use mostly in motor vehicles as well as heating fuel and as an industrial solvent.

Large-volume production of bio-diesel occurs mainly in Europe, with production in excess of 1.4 mt a year. Projects and proposals are being announced in many countries with a wide variety of oil sources as input.

There is great potential for demand-pull to increase oilseed production if bio-diesel production expands, according to US Department of Agriculture (USDA) which reasoned that the current high world prices for crude oil (light sweet crude for August delivery on the New York Mercantile Exchange settled at $ 40.77 on July 15, 2004) makes bio-diesel production more attractive.

From 1.06 mt in 2002, EU bio-diesel production increased by over a third to 1.43 mt in 2003 with Germany accounting for 50 per cent of the production, followed at a distance by France and Italy. In October last year, the EU Council of Ministers adopted new pan-EU rules for the detaxation of bio-diesel and bio-fuels which allow (but do not mandate) member-States to reduce excise tax rates on bio-fuels compared to mineral fuels.

After achieving notable success in producing and using ethanol (from sugarcane) Brazil is now eying bio-diesel. A new programme aims to develop technology for the production, industrialisation and use of bio-diesel, including its use in mixtures with diesel using pure and residual vegetable oils.

Agro-climatic conditions in Brazil help cultivation of crops as diverse as soyabean, palm, coconut, castor, cottonseed and sunflower, all of which can be used for bio-diesel production. The country is world's second largest producer of soyabean (54 mt in 2004 and 60 mt targeted for 2005) as a result of which soyabean oil becomes the most viable option for bio-diesel.

The Philippines is also encouraging use of coconut oil for bio-diesel because of its large production base. Early this year, all Government vehicles were mandated to incorporate one per cent by volume coconut bio-diesel (coconut oil methyl ester) in diesel fuel.

Malaysia, world's top producer of palm oil, continues to encourage usage diversification in order to support prices from falling to unremunerative levels. It is estimated that up to 5,00,000 tonne of palm oil could be used for burning.

In the US, some vehicle fleets use bio-diesel. The National Biodiesel Board estimated 80,000 tonne sales in the US in 2003, up 67 per cent from a year earlier and up 400 per cent from 2001. Soyabean oil is the principal oil being used for bio-diesel. The US is the world's largest producer of soyabean.

India too is seriously looking to exploit its natural resources. Experiments to blend ethanol with motor fuel have proved successful.

As bio-diesel will have to compete with mineral oil for a larger market share, tax breaks for use of environment friendly fuels may become necessary to boost production.

Diversification of vegoil usage will help temper price volatility in the world market as well as in the domestic market, bring more remunerative prices to producers and help contain ecological damage through rampant use of mineral oil.

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