Ethanol push firms grain prices Matthew Warren, Environment writer March 08, 2007
CLIMATE change and energy security are beginning to underwrite world grain and oilseed prices as governments increase subsidies and mandatory targets for biofuels. The use of corn in ethanol production in the US is tipped to reach 80 million tonnes this year, consuming about 30 per cent of the entire US crop. Australian Bureau of Agricultural and Resource Economics commodities manager Vince O'Donnell told the Outlook conference in Canberra yesterday that promotion of alternative fuel sources by governments in the US, Europe and China would continue to boost most grains prices over the next five years.
Coarse grains such as barley and corn, and oilseeds such as canola can be used for production of fuels such as ethanol and biodiesels, which are being promoted to compete with OPEC producers and for their lower greenhouse gas emissions.
The use and development of these fuels was relatively low in Australia, Mr O'Donnell said, but grain growers recovering from the drought could expect export prices to hold and improve with strong global demand.
"In the medium term, demand for grains and oilseeds is expected to increase, driven largely by increasing demand for use in the production of biofuels," he said.
Ethanol has become a major driver of course grains demand, with 100 operational plants in the US producing 20 billion litres and another 73 under construction, he said.
ABARE has previously forecast that existing biofuel technology would require a sustained world oil price of more than $US55 ($71) a barrel to make ethanol production competitive.
Without sourcing alternative feedstocks, the effect of major mandatory biofuel targets will be to cannibalise food crop production.
The US government announced plans earlier this year to reduce petrol usage by 20 per cent within a decade, largely by increased use of biofuels. In his State of the Union speech last month, US President George W. Bush said domestic ethanol and alternative fuel output was expected to reach 160 billion litres a year by 2017.
Europe has mandated 2 per cent use of biofuels, rising to 5.75 per cent by 2010, estimated by the International Energy Agency to require 20 per cent of Europe's cropland area be diverted from food to fuel.
The IEA predicts that 43 per cent of US crop production would be needed to meet 10 per cent of its automotive and diesel fuel demand by 2020.
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