The Hindu Business Line : Palm oil ideal for bio-diesel despite threats: FAO

The situation has rapidly reached a level where the entire agricultural sector and its markets are being impacted. There are also apprehensions that non-food use of food products could hurt food and nutrition security of a large mass of poor people.

Mumbai , Dec. 8

In recent years, there has been a sharp rise in the demand for biofuels -

mainly bioethanol and biodiesel - derived from grains, vegetable oils, sugar and other crops or derived products. In addition, with escalating energy prices, tactical investors have begun to pour money into the biofuel market hoping for a quick kill as commodity prices rise because of sudden emergence of demand.

Impact of demand

No wonder, the assessment of the consequences of rising bio-fuel demand for agricultural production, trade in agricultural commodities and agro-based industries has begun to engage everyone's attention.

In a report titled "Biofuels and Commodity Markets - Palm Oil Focus", Food and Agriculture Organisation (FAO) has come up with a report that sheds some light on the implications of growing bio-fuel demand in one particular area, the global palm oil economy. Though on purely technical grounds, the majority of vegetable oils are suitable for bio-diesel production, the level of profitability depends on production costs and other economic parameters. There is general consensus that - in the absence of subsidies - palm oil is by far the most competitive vegetable oil for bio-diesel production.

However, ironically, to date, - despite all the hype about diversion of large palm oil stocks for bio-diesel - the use of palm oil as bio-diesel feedstock has been extremely modest.

According to the FAO report, while rapeseed oil accounts for 84 per cent of bio-diesel production, sunflower oil follows at a distance at 13 per cent.

Bio-diesel produced from palm oil is a mere one per cent, while soyabean and other oils together account for two per cent.

Production prospects

What are the future production prospects for palm oil based bio-diesel in Asia? Surely, production capacity is set to expand over the next few years, and much of it will be oriented towards the export market.

Assuming that all the currently planned and authorised bio-diesel plants come on stream, production capacity could reach three-four million tonnes in Malaysia and twomillion tonnes in Indonesia, the report has estimated.

Malaysian and Indonesian Governments too have announced their official target of allocating each 6 mt of palm oil annually for bio-diesel production (representing about 40 per cent of national output).

FAO report has raised the question whether future global demand growth for bio-diesel is going to match these levels. It is possible that considerable excess production capacity is about to be installed in Asia.

It is also envisaged that over time, synthetic fuels (gas-to-liquid and carbon-to-liquid), cellulosic biomass-based fuel and hydrogen fuel will become commercialised. When these become competitive, the conventional bio-ethanol and bio-diesel could lose their current appeal.

The report also notes that with rising production volumes, concerns over social and environmental implications of bio-fuels from farm commodities are rising. Because of competition for acreage with food crops, energy crops can compromise food security in some regions.

FAO report has noted that though palm oil is well-suited for bio-diesel production and rise in demand could trigger further expansion of palm oil production, concerns about the environmental and social sustainability of the sector's future expansion are growing among civil society groups, policymakers and market players.

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