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Environmental focus
While a projected boom in renewable diesel producti on is expected to disrupt the US oils and fats market, a swift er adopti on of electric transport technology in Europe is likely to reduce this impact across the Atlanti c, according to the European Commission (EC).
In its agricultural outlook for 2021-31, the EU executi ve said that biofuel demand will start to “decrease as road transport fuel use starts to trickle away”. This means that EU biodiesel use should peak at 18.9bn litres in 2023, declining by 24% to reach 14.3bn litres in 2031. Bioethanol usage will also fall, although its non-fuel applicati ons will slow its decline, with EU usage peaking at 7.1bn litres in 2023 and falling by 10% to reach 6.4bn litres in 2031.
The result of these trends, encouraged by the European Green Deal policy that prioriti ses electrifi cati on of transport systems and the development of renewable energy, could be a more stable market mix of oils and fats between food and non-food, compared with the USA.
For instance, looking at soyabean oil – a key renewable diesel feedstock – the US Department of Agriculture (USDA) forecasts EU consumpti on for industry use in 2021/22 (from October) to be 1.09M tonnes, and 1.37M tonnes for e EU’s strong environmental policies are having a major impact on its oils and fats sector. However, the strength of its economy means the industry should remain secure for the next decade Keith Nuthall
food. This is similar to 2020/21’s share of 1.08M tonnes for industry and 1.4M tonnes for food use.
Regardless of how the EU oils and fats market is organised, the bloc remains a globally important player. Europe is a major source of oils and fats sales, with US$50.1bn in revenue generated in 2021, according to stati sti cal analysts Stati sta. The market is expected to grow at a compound annual growth rate (CAGR) of 3.3% between 2021 and 2026. This growth is also projected by market researcher Mordor Intelligence, which forecasts a European oils and fats CAGR for 2020-5 of 3.35%. It said that the European vegetable oil market alone in 2020 was worth US$29.2M.
These sales are being driven by “robust demand for organic health-based products, with increased consumpti on among health-conscious consumers of high-quality edible oils /cooking oils…” Mordor said. It stressed that market support from the renewable energy directi ve (RED) and EU Common Agricultural Policy (CAP) boosts the producti on and sale of vegetable oil in a wide range of industries, including biofuel, food, animal feed and cosmeti cs.
Common Agricultural Policy
The CAP is important for food and nonfood oils and fats producti on and it has been reformed in the past year. A €386bn CAP for 2023-27 was fi nally agreed, aft er two years of negoti ati ons, in November 2021, with guidance prioriti sing EU agricultural subsidies improving environmental performance by producers and the producti on of crops that reduce carbon emissions when processed.
This will include funding the development of sustainable energy within agriculture, including biofuels use, and also additi onal funding for biofuel-
u focused farming, especially those with a lower carbon footprint. A key target of funding is to be “farms benefitting from CAP investment support contributing to climate change mitigation and adaptation, and to the production of renewable energy or biomaterials.”
As for the RED, this is also being revised, with reforms being proposed in July. It is important because with non-biofuel alternative fuels remaining under-developed for the time being, it is likely to encourage biofuel usage, but as renewable hydrogen-based fuels become more developed, this pressure may ebb.
Regarding the key transport sector, RED reforms propose a new target for reducing the greenhouse gas intensity of transport fuels used in the EU by 13% by 2030. When compared to the energy-based target of the existing directive, that would mean a 28% reduction in emissions (up from 14% at present).
The new proposal would include an additional sub-target of 2.2% for the use of advanced biofuels, such as those made from straw, algae, manure, nut shells, husks and more non-food bio-feedstocks. However, as in the previous directive, the proposed law would limit to 7% the share of transport biofuels produced from food and feed crops within total transport energy consumption, an important constraint on biofuel production and sales.
Pekka Pesonen, secretary-general of EU farmers association Copa-Cogeca, has accused the European Commission of “taking a very ultra-orthodox approach to the sustainability criteria”. Speaking to EU newswire Euractiv, Pesonen, said that the restriction would reduce the capacity of Europe to export food-based biofuels. “We need the conventional biofuel sector…. And we need advanced biofuels on top…,” he said.
That said, other EU legislative initiatives linked to the European Green Deal will ramp up EU legislative support for oils and fats sales in general.
Green Deal boosts biofuels
The Green Deal also includes three targeted legislative initiatives boosting the use of biofuels in transport. These include a ReFuelEU Aviation proposed regulation that tells fuel suppliers to include sustainable aviation fuel (SAF), which can include biofuels, within blended aviation fuels offered at EU airports. The law would ramp up the minimum SAF proportion supplied from 2% in 2025 to 63% in 2050. Airports would be forced to install equipment to store and blend SAF with standard kerosene.
Another initiative is the FuelEU Maritime regulation, which will increase biofuels used in shipping visiting EU territorial waters. The proposed law would impose reductions in carbon emissions from vessels, of 2% from January 2025, 13% from January 2035, 59% from January 2045 and 75% from January 2050. A key approved method of achieving these goals will be powering boats with biofuels, which (along with bioLNG) are projected to be 53.3% of the EU maritime fuel mix by 2050, up from 2.9% in 2025.
Meanwhile, a proposed Alternative Fuels Infrastructure Regulation encourages the installation of interoperable delivery and storage systems for alternative fuels for all transport system in Europe.
Commenting on the overall European Green Deal package, EU transport commissioner Adina Vălean, said: “We will create a market for sustainable alternative fuels and low-carbon technologies, while putting in place the right infrastructure to ensure the broad uptake of zero-emission vehicles and vessels.”
EU palm oil imports to fall
One biofuel feedstock that is certainly not being encouraged by EU policy, however, is palm oil, which the EC, following pressure from the European Parliament, has ruled cannot count as a renewable feedstock to help member states meet their renewable energy targets from 2030. MEPs have argued that palm oil plantations are responsible for significant tropical deforestation.
Unsurprisingly, this move has upset Indonesia and Malaysia – the world’s largest palm oil producers – with both countries launching a dispute case at the World Trade Organization (WTO) against the EU, claiming the move breaks global trade rules.
Indonesia and Malaysia claim the EU restrictions breach the WTO’s Agreement on Technical Barriers to Trade, the General Agreement on Tariffs and Trade 1994, and the Agreement on Subsidies and Countervailing Measures. The WTO has yet to rule on these cases, and if either party appeal, the dispute is unlikely to be resolved soon, because the WTO appellate body remains in limbo, with the USA blocking nominations to serve as a member over a dispute about how this tribunal operates.
As a result, anticipated exports of palm oil to the EU are expected to fall. Statista notes that 2020 Malaysian exports to the EU totalled 1.83M tonnes, down from 2.36M tonnes in 2016, for instance.
But the feedstock is still an important element of the EU biofuel mix. Data released by campaign group Transport & Environment said that palm oil was still the second largest feedstock in European biodiesel – 4.68M tonnes in 2020. Only rapeseed oil was more important at 5.67M tonnes.
Rapeseed on the decline
Rapeseed is the dominant EU-produced oilseed but it been grown and crushed in declining quantities over the past three years in Europe.
The latest USDA GAIN report on EU oilseeds released in April 2021 said that: “After reaching a high of 6.5M ha in production in the 2018/19 marketing year, the rapeseed area in the EU declined and stagnated over the past three years along with production [even taking account of Britain’s exit from the EU in January 2020]. As a result, demand for rapeseed currently exceeds domestic supply.”
The USDA blamed this decline on the EU’s ban on neonicotinoid pesticides to protect honeybees. “Insufficient initial protection due to missing neonicotinoid seed coating leads to higher insect damage and increased frequency of applications of other, less efficient pesticides”, increasing costs. Imports of rapeseed for 2020/21 are estimated in the GAIN report at 6.5M tonnes, up from 6.1M tonnes the previous year.
However, with palm oil imports expected to fall, and the EU’s food production industry a key element of its economy, the value of rapeseed oil as a livestock feedstock, especially in the dairy sector, is likely to keep this oilseed segment in good health.
Soyabean meal’s high protein content means that feed uses will also help keep EU soyabean production expanding. The USDA predicted that the EU soyabean planted area would increase by 3% in 2021/22 compared with 2020/21 to
exceed 1M ha for the second year.
With healthy rainfall in key producing countries, the EU soyabean crop is expected to be 10% higher in 2021/22 than 2020/21. Despite this – demand sti ll exceeds supply – as with rapeseed oil and the EU needs to import soyabeans, with a forecast 14M tonnes expected to be imported in 2021/22, with more than 50% coming from Brazil, 25% from the USA and 10% from Canada.
One key issue for the EU soya sector is to avoid the criti cism levelled at the palm oil segment, that it promotes deforestati on, and European vegetable oil and protein meal industry associati on Fediol has been working hard to demonstrate the soya segment’s sustainability. The associati on in October released an assessment arguing that 87% of the soyabeans processed in the EU in 2020 were sourced from regions with a low risk of deforestati on, up 20% on its 2016 record. Fediol said: “Further eff orts are being deployed to ensure soyabean producti on is not linked to the destructi on of forests or savannahs.”
Such concerns are less of an issue for sunfl owerseeds, another major EU oil feedstock, given that recepti ve growing conditi ons in the Black Sea region especially mean there is less demand for imports from environmentally sensiti ve regions. For 2021/22, the USDA anti cipates that the EU will import 2.05M tonnes of sunfl owerseeds, down from 2.3M tonnes in 2019/20.
The GAIN report said that the area under sunfl ower culti vati on in the EU increased in 2021/22 to the highest level in the last fi ve years – 4.48M ha – with high prices encouraging growth in producti on within Bulgaria, the Czech Republic, Hungary and Slovakia.
EU to maintain butter exports
Meanwhile, looking at dairy fats, always a strong segment for Europe, the EC’s 2021-31 agricultural outlook, released in October, predicts that the EU will hold its positi on as a butt er exporter. Producti on is expected to grow steadily from 2.39M tonnes this year to 2.45M tonnes in 2031. Exports are projected to expand from 299,000 tonnes in 2022 to 334,000 tonnes in 2031, while imports drift slightly from 34,000 tonnes this year to 35,000 tonnes in 2031.
“Nutriti onal aspects and functi onality will drive EU dairy demand, with organic consumpti on also being supported by public support measures,” said the EC. Organic dairy products should benefi t from growing demand, it added.
Top olive oil producer
Finally, olive oil, a crop where Europe retains internati onal dominance, will also be subject to solid growth, with producti on forecast to rise from 2.23M tonnes in 2021 to 2.51M tonnes in 2031. Exports will also increase signifi cantly, from 860,000 tonnes in 2021 to 1.09M tonnes in 2031.
Europe is getti ng bett er at producing olive oil, suggests the EC report.
“Value creati on in broader terms remains signifi cant, leading to improved profi tability especially in super intensive systems.” These involve a quick entry into producti on (usually the second or third year from planti ng) and delivering a high quality output with minimised losses through fully mechanised producti on, from planti ng and pruning to harvesti ng.
In short, while the EU’s strong line on environmental policy is having a major impact on its oils and fats sector, the inbuilt strengths of Europe’s economy, especially food producti on, means that the region’s oils and fats market should remain solid and secure for the next decade. ● Keith Nuthall is the editor of International News Services
