Biofuel consumption increased significantly in 2008 as petroleum prices reached a record high.
The run-up in crude oil prices left gasohol and biodiesel as cheaper options for Thai consumers. Attractive prices for E10 (a mixture of 10 percent ethanol and 80 percent premium gasoline) over regular gasoline and the compulsory production of B2 diesel has given Thailand viable alternatives to standard gasoline. Biofuel demand is forecast to increase from 2.1 million liters/day to 13.5 million liters/day, particularly for ethanol. A recent study by the Bank of Thailand found significant correlation between ethanol demand and increases in feedstock prices, particularly for tapioca prices.
However, despite higher feedstock prices, increased biofuel demand should have only a marginal impact on food prices. Currently the commodity most susceptible to increased biofuel demand is palm-based cooking oil. However, the price of palm cooking oil is currently regulated by the Thai Government. Ethanol is produced using sugar and tapioca as feedstock. Longer term, increases in the quantity of tapioca produced is not expected to come at the expense of food crops. All other things being equal, ethanol production will likely remain viable despite anticipated higher feedstock prices, which have been driven by market demand and government intervention programs. Price increases for tapioca should drive yield improvements and acreage expansion in the long run. Domestic demand for feed corn, often grown in the same areas as tapioca, will likely be met by low-cost imported corn from neighbouring countries. Increased demand for biodiesel should drive acreage expansion for oil palm through orchard replacement. The impact of orchard replacement will lead to a greater affect on prices as oil palm prices are expected to become more volatile once the B5 diesel production policy is fully implemented and must compete with cooking oil production.

By: P. Prasertsri, M. Kunasirirat (GAIN Report)

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