Induced market disturbances related to biofuels

Jul 2009

The current market introduction of biofuels coincides with significant price increases on other commodity markets. However it is not clear to what extend biofuels really cause an increased demand for raw materials and thus an important price impact for all alternative applications of these raw materials. While the introduction of biofuels will have a positive impact on some of the related markets and negative on others, the magnitude of this impact needs to be analysed in more detail. Although at this stage, the European biofuel industry does not seem to be a threat to global food production, real concerns exist to what might happen in the future if the current biofuels expansion rates persist. Future growth rates must take due account of the feedback loops that exist between the profitability of biofuel production and feedstock cost, as well as a number of uncertainty factors that will affect the availability and price of raw material for everyone. Such factors include physical aspects of production (land availability, yields, crushing capacities), market factors (e.g. concentration, price elasticity of demand, availability of substitutes), governmental interference (subsidy levels) and international trade agreements. It is important to avoid policy-induced market disturbances as these can become a major barrier for industry and public support for biofuels. The ELOBIO project aims at the development of low-disturbing policy options, enhancing biofuels while minimising the impacts on e.g. markets for food, feed, and biomass for power and heat. This report shows the result of task 2.3 of the ELOBIO project. In this task the status of knowledge of induced market disturbances towards feed, food and other markets will be described. Possible market interferences of various biofuels and feedstocks for biofuels will be described in general and some cases will be treated in more depth, documented with market figures. In a next stage of the ELOBIO project - that is outside the scope of this report - the outcomes of the initial study will be used as input for stakeholder-supported development of low- disturbing biofuels policies, using model-supported assessment of these policies' impacts on food and feed markets, as well as model-supported analysis of the relations between the biofuels policies and ligno-cellulose markets.

By: L.Pelkmans, K. Kessels (VITO), T. Bole (ECN)

 
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