Biodiesel Demand Changing Dynamics of Global Vegetable Oil Industry


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Study: Biodiesel Demand Changing Dynamics of Global Vegetable Oil Industry
7 August 2006

Rabobank sees biodiesel demand accounting for almost half of the increase in vegetable oil consumption by 2010. Click to enlarge.
A new study by Rabobank’s Food and Agribusiness Research group finds that the increasing global demand for biodiesel and other biofuels is driving demand for vegetable oils to historic levels in world markets, leading to higher prices for vegetable oils relative to meals and causing soybean crushers to reevaluate their business models.
The confluence of environmental concerns, high energy prices and government incentives which is fueling demand growth is also driving expansion on the supply side, leading to significant increases in oilseed processing capacity.
Worldwide use of vegetable oils is expected to post growth of approximately 5.5% CAGR between 2005 and 2010, a significant departure from historical rates, reflecting the newly expanded biodiesel application.
Biodiesel is proving to be a significant demand shifter in the overall vegetable oil industry, but the canola and palm sectors will benefit more proportionally from this growth, thanks to their high oil content and the oils’ multiple uses as food and foodstock.
—Alejandro Reca, Executive Director, Rabobank Food and Agribusiness Research group in the Americas

Production forecast for select veg oils. Click to enlarge.
Dr. Reca expects Canada to capture at least half of the anticipated 300% increase in production and crushing of canola, and Southeast Asian countries to expand palm oil processing by 500%. He also predicts that recent income gains in the global vegetable oil industry will remain strong, since food consumption of vegetable oils should mitigate any potential decline in non-food uses of vegetable oil.
Reca notes, however, that the variance between lower prices for vegetable meals and higher prices for vegetable oils, as well as the increasing competition from DDGs, was causing many soybean crushers to rethink their traditional business models.
Today’s market conditions create the ideal environment for investment in and promotion of alternatives to petrofuels, and biodiesel in particular is attracting significant support on both the supply and demand side. As a result, the growth in the biodiesel market has economic and commercial implications far beyond just the energy markets, from increasing production and creating new trade flows for vegetable oils, to attracting new investors to the agribusiness sector, and ultimately to increasing the integration of global agricultural and energy markets.