Impact of Energy Crops on World markets

1. Impact of Energy Crops on World markets Alastair Dickie Director, Crop Marketing, HGCA

2. If we want biofuels, … • are we going to starve? • can Food and Fuel from agriculture co-exist? • will we damage the Environment?

3. UK Road Transport Fuel Use - Greener, more efficient. But still growing Source: HGCA/DTI

4. Road fuels • 1st 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)

5. 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

6. 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

7. World Fuel ethanol production Source: FO Lichts

8. Brazil - ethanol Source: FO Lichts

9. US in the future

10. Future Ethanol Consumption

11. EU biodiesel production

12. The RTFO (UK) • Renewable Transport Fuels Obligation • 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% at start (April 2008) • 3.75% 2009 • 5% 2010

13. UK Biofuel Production capacity Source: Industry and HGCA

14. World Trends – Corn- market is in balance and prices are adjusting

15. World Trends – Corn (less Ethanol)a depressed agriculture damages the poor most World Corn less Ethanol Use

16. Bio-fuel and petroleum price linked – new market dynamics to manage Source: HGCA

17. Chicago Corn v NY Gasoline - some linkage in price but not always

18. Chicago Bean oil v NY Diesel- demand leakage gives price influence

19. High forward prices - will lead to a global supply response Source: USDA/HGCA/SAC

20. Key Importers Key Exporters Key EU Importers New Exporters Poor people can grow grain- export possibilities from new areas Iran

21. New Cereal Supplies around the World- High Prices will bring a Supply Response * For crop cultivation, 1994-96 Source: HGCA/FAC

22. 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

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