Impact of Energy Crops on World markets

Alastair Dickie Director, Crop Marketing, HGCA

If we want biofuels, …

• are we going to starve?

• can Food and Fuel from agriculture co-exist?

• will we damage the Environment?

UK Road Transport Fuel Use - Greener, more efficient. But still growing Petrol Diesel 40 35 30 25 20 15 10 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04

Source: HGCA/DTI

Road fuels

1 st Generation biofuels

• Bioethanol – derived by fermentation from sugar or starch crops - UK crops – wheat, sugar beet - Global – sugar cane, maize • Biodiesel – derived by methyl esterification of vegetable oils - UK crops – oilseed rape - Global – palm, soy, (jatropha)

Biomass

Potentially large volumes (co-firing in power stations)

•

or small to medium scale (on-farm or community)

Used for energy generation, heat or combined heat and power (CHP) • Alternative market for cereal and oilseed co-products • • - straw, rape meal Market for grain – out of specification, fusarium, more value to burn!

Enhanced energy balance in biorefinery

EU and World positions

EU

• The 5.75% obligatory inclusion rate will require the equivalent of 24 MT of grain • Grain surplus 10-25 MT • 4M Ha in setaside plus land coming out of sugar production

World

• Interest mainly with bioethanol • Brazil and US are leading producers in ethanol • US Energy Policy Act 2005 - Renewable Fuel Standard (Sec. 1501) 7.5 billion gallons by 2012 • Large biodiesel interest in EU only

World Fuel ethanol production

Brazil US Canada EU World 19 75 19 78 19 81 19 84 19 87 19 90 19 93 19 96 19 99 20 02 20 05

Source: FO Lichts

Brazil - ethanol

30000 25000 20000 Production Consumption Exportable surplus 15000 10000 5000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: FO Lichts

US in the future

30000 25000 20000 15000 10000 5000

Ethanol production Maize usage

0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: EIA, USDA

2007 2008 2009 2010 2011 2012 80 70 60 50 40 30 20 10 0

Future Ethanol Consumption

Projected Fuel Ethanol Consumption. Source: IEA 140000 120000 100000 80000 60000 40000 20000 0 1975 1980 1985 1990 Brazil 1995 Year 2000 US & Canada 2005 EU 2010 World 2015 2020

EU biodiesel production

7000 6000 5000 4000 3000 2000 1000 0 2002 2003 2004

Source: EBB

2005 2006 Others Czech Republic** United Kingdom Austria Italy France Germany

The RTFO (UK)

R

enewable

T

ransport

F

uels

O

bligation • Similar concept to Renewables Obligation in the power sector • Requires 5% volume of all UK fuel sold on UK forecourts should originate from a renewable source by 2010, starting 2008 • 20 fold increase on current UK sales • Budget announced immediate levels of Obligation volume -

2.5 % 3.75% 5%

at start (April 2008) 2009 2010

UK Biofuel Production capacity

2500 2000 '000 tonnes 1500 1000 500 0 20 05 /0 6 Biodiesel Bioethanol 20 06 /0 7 20 07 /0 8 20 08 /0 9 20 09 /1 0 20 10 /1 1 Source: Industry and HGCA

World Trends – Corn

- market is in balance and prices are adjusting

World Corn

750,000 700,000 650,000 600,000 550,000 500,000 450,000 400,000 19 90 /1 99 19 1 91 /1 99 19 2 92 /1 99 19 3 93 /1 99 19 4 94 /1 99 19 5 95 /1 99 19 6 96 /1 99 19 7 97 /1 99 19 8 98 /1 99 19 9 99 /2 00 20 0 00 /2 00 20 1 01 /2 00 20 2 02 /2 00 20 3 03 /2 00 20 4 04 /2 00 20 5 05 /2 00 6 Production Consumption

World Trends – Corn (less Ethanol)

a depressed agriculture damages the poor most

World Corn less Ethanol Use

750,000 700,000 650,000 600,000 550,000 500,000 450,000 400,000 19 90 /1 99 1 19 91 /1 99 2 19 92 /1 99 3 19 93 /1 99 4 19 94 /1 99 5 19 95 /1 99 6 19 96 /1 99 7 19 97 /1 99 8 19 98 /1 99 9 19 99 /2 00 0 20 00 /2 00 1 20 01 /2 00 2 20 02 /2 00 3 20 03 /2 00 4 20 04 /2 00 5 20 05 /2 00 6 Production Consumption net

Bio-fuel and petroleum price linked

–

new market dynamics to manage

CBOT ethanol 450 400 350 300 250 200 150 100 50 0 Apr 05 Jul 05 Oct 05 NYMEX petroleum Jan 06 Apr 06 Jul 06 Oct-

Source: HGCA

06

Chicago Corn v NY Gasoline

- some linkage in price but not always

Chicago Bean oil v NY Diesel

- demand leakage gives price influence

High forward prices

- will lead to a global supply response

Production response World wheat price at sowing 80 70 60 50 40 30 20 10 0 -10 '9 6 -20 '9 7 '9 8 '9 9 '0 0 '0 1 '0 2 '0 3 '0 4 '0 5 '0 6 '0 7 290 270 250 230 210 190 170 150 130 110 90

Source: USDA/HGCA/SAC

Poor people can grow grain

- export possibilities from new areas

Key Exporters Iran Key Importers Key EU Importers New Exporters

New Cereal Supplies around the World

- High Prices will bring a Supply Response

(Million Hectares)

UNITED STATES Total Land

947

BRAZIL

854

UKRAINE RUSSIA, FED.REP

60 1,674

ETHIOPIA

113

NIGERIA

91

Totals 3,738 * For crop cultivation, 1994-96 Suitable Arable Land Land in use* Land Available

220 169 40 147 24 39

639

180 64 34 130 10 32 41 105 6 17 13 7

450 188

Source: HGCA/FAC

So let’s answer the questions!

•

Are we going to starve?

No we are going to increase the production of cereals and oilseeds to meet the new demands. This will involve cropping on land previously idle.

•

Can Food and Fuel from agriculture co-exist?

Of course they can, fuel crops and food crops will be balanced by the distribution of market prices so that supply & demand are balanced •

Will we damage the Environment?

This is a more challenging question. As more land is drawn into production we have to beware of abuse to eco-systems and carbon efficiency

… let’s work together to improve our world Thank you