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    Spanish company Ferry Group is to invest €42/US$55.2 million in a project for the production of biomass fuel pellets in Bulgaria. The 3-year project consists of establishing plantations of paulownia trees near the city of Tran. Paulownia is a fast-growing tree used for the commercial production of fuel pellets. Dnevnik - Feb. 20, 2007.

    Hungary's BHD Hõerõmû Zrt. is to build a 35 billion Forint (€138/US$182 million) commercial biomass-fired power plant with a maximum output of 49.9 MW in Szerencs (northeast Hungary). Portfolio.hu - Feb. 20, 2007.

    Tonight at 9pm, BBC Two will be showing a program on geo-engineering techniques to 'save' the planet from global warming. Five of the world's top scientists propose five radical scientific inventions which could stop climate change dead in its tracks. The ideas include: a giant sunshade in space to filter out the sun's rays and help cool us down; forests of artificial trees that would breath in carbon dioxide and stop the green house effect and a fleet futuristic yachts that will shoot salt water into the clouds thickening them and cooling the planet. BBC News - Feb. 19, 2007.

    Archer Daniels Midland, the largest U.S. ethanol producer, is planning to open a biodiesel plant in Indonesia with Wilmar International Ltd. this year and a wholly owned biodiesel plant in Brazil before July, the Wall Street Journal reported on Thursday. The Brazil plant is expected to be the nation's largest, the paper said. Worldwide, the company projects a fourfold rise in biodiesel production over the next five years. ADM was not immediately available to comment. Reuters - Feb. 16, 2007.

    Finnish engineering firm Pöyry Oyj has been awarded contracts by San Carlos Bioenergy Inc. to provide services for the first bioethanol plant in the Philippines. The aggregate contract value is EUR 10 million. The plant is to be build in the Province of San Carlos on the north-eastern tip of Negros Island. The plant is expected to deliver 120,000 liters/day of bioethanol and 4 MW of excess power to the grid. Kauppalehti Online - Feb. 15, 2007.

    In order to reduce fuel costs, a Mukono-based flower farm which exports to Europe, is building its own biodiesel plant, based on using Jatropha curcas seeds. It estimates the fuel will cut production costs by up to 20%. New Vision (Kampala, Uganda) - Feb. 12, 2007.

    The Tokyo Metropolitan Government has decided to use 10% biodiesel in its fleet of public buses. The world's largest city is served by the Toei Bus System, which is used by some 570,000 people daily. Digital World Tokyo - Feb. 12, 2007.

    Fearing lack of electricity supply in South Africa and a price tag on CO2, WSP Group SA is investing in a biomass power plant that will replace coal in the Letaba Citrus juicing plant which is located in Tzaneen. Mining Weekly - Feb. 8, 2007.

    In what it calls an important addition to its global R&D capabilities, Archer Daniels Midland (ADM) is to build a new bioenergy research center in Hamburg, Germany. World Grain - Feb. 5, 2007.

    EthaBlog's Henrique Oliveira interviews leading Brazilian biofuels consultant Marcelo Coelho who offers insights into the (foreign) investment dynamics in the sector, the history of Brazilian ethanol and the relationship between oil price trends and biofuels. EthaBlog - Feb. 2, 2007.

    The government of Taiwan has announced its renewable energy target: 12% of all energy should come from renewables by 2020. The plan is expected to revitalise Taiwan's agricultural sector and to boost its nascent biomass industry. China Post - Feb. 2, 2007.

    Production at Cantarell, the world's second biggest oil field, declined by 500,000 barrels or 25% last year. This virtual collapse is unfolding much faster than projections from Mexico's state-run oil giant Petroleos Mexicanos. Wall Street Journal - Jan. 30, 2007.

    Dubai-based and AIM listed Teejori Ltd. has entered into an agreement to invest €6 million to acquire a 16.7% interest in Bekon, which developed two proprietary technologies enabling dry-fermentation of biomass. Both technologies allow it to design, establish and operate biogas plants in a highly efficient way. Dry-Fermentation offers significant advantages to the existing widely used wet fermentation process of converting biomass to biogas. Ame Info - Jan. 22, 2007.

    Hindustan Petroleum Corporation Limited is to build a biofuel production plant in the tribal belt of Banswara, Rajasthan, India. The petroleum company has acquired 20,000 hectares of low value land in the district, which it plans to commit to growing jatropha and other biofuel crops. The company's chairman said HPCL was also looking for similar wasteland in the state of Chhattisgarh. Zee News - Jan. 15, 2007.

    The Zimbabwean national police begins planting jatropha for a pilot project that must result in a daily production of 1000 liters of biodiesel. The Herald (Harare), Via AllAfrica - Jan. 12, 2007.

    In order to meet its Kyoto obligations and to cut dependence on oil, Japan has started importing biofuels from Brazil and elsewhere. And even though the country has limited local bioenergy potential, its Agriculture Ministry will begin a search for natural resources, including farm products and their residues, that can be used to make biofuels in Japan. To this end, studies will be conducted at 900 locations nationwide over a three-year period. The Japan Times - Jan. 12, 2007.

    Chrysler's chief economist Van Jolissaint has launched an arrogant attack on "quasi-hysterical Europeans" and their attitudes to global warming, calling the Stern Review 'dubious'. The remarks illustrate the yawning gap between opinions on climate change among Europeans and Americans, but they also strengthen the view that announcements by US car makers and legislators about the development of green vehicles are nothing more than window dressing. Today, the EU announced its comprehensive energy policy for the 21st century, with climate change at the center of it. BBC News - Jan. 10, 2007.

    The new Canadian government is investing $840,000 into BioMatera Inc. a biotech company that develops industrial biopolymers (such as PHA) that have wide-scale applications in the plastics, farmaceutical and cosmetics industries. Plant-based biopolymers such as PHA are biodegradable and renewable. Government of Canada - Jan. 9, 2007.

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Monday, August 07, 2006

Unilever thinks food prices would soar in biofuels switch

Europe faces soaring food prices, a shortage of staple foods and declining public health if governments push ahead with plans to promote the use of biofuels, says Unilever, one of the world's biggest food companies.

We agree with some of Unilever's assessments, but the truth is that this situation is only due to the EU and the US's agricultural subsidies. If these markets were to open up in a fair and free trade regime, the developing world could supply them with abundant and cheap biofuels feedstocks, and Unilever would not have to worry about rising prices. Moreover, such a trade relationship - which is what the BioPact aims to promote - would be beneficial to both parties. It would give poor farmers in the developing world a unique opportunity to lift themselves out of poverty, and consumers here would not have to pay high prices for subsidized biofuels.

The US and the EU subsidize their farmers and waste billions of EU/US taxpayers' money each year to do so, resulting in trade distortions that anyone would deem to be absurd. These distortions keep millions of farmers in the South in poverty, whereas under a fair trade regime, they would be competitive.
Uncompetitive European sugar producers get a fixed price per ton three times above world market prices. At the same time, sugar producers from the South who could bring sugar to the market much more competitively face quotas and are barred from accessing the EU market. A similar situation exists in the US, when it comes to corn and soy. For example, the US hands out a 51-cent subsidy per gallon of locally produced corn-ethanol with the one hand, while it imposes a 54-cent tariff on Brazilian ethanol with the other. Obviously European and American taxpayers are the victims, as are the farmers in the South.

It is obvious to anyone that this is the real reason as to why prices would rise when the switch to biofuels is implemented. If a fair and logical trade regime were in place, there would be no problem. The tropics are simply more suited to producing biofuels feedstocks than the North. And the North should recognize this, instead of highjacking this segment of the world economy.

Let's listen to Unilever's arguments first, though:

:: :: :: :: :: :: :: :: ::

the company fears that Europe-wide plans for a huge increase in use of vegetable oils, such as rapeseed and palm oil, in the manufacture of biofuels will have dramatic consequences, driving up the cost of foods such as margarine and leading consumers to switch to less healthy animal fats. Huge efforts are being made to promote biodiesel amid concern over the rising cost of oil and reliance on the Middle East for supplies. The European Commission wants to increase the proportion of biofuel used in road transport from current levels of 0.8 per cent to 5.75 per cent by 2010.

Alan Jope, Unilever vice-president, fears that the rush to convert food crops into transport fuel will have unintended consequences. He said: "The scale is dramatic. To meet current EU quotas would require between 50 and 80 per cent of rapeseed production. Ultimately, there could be supply shortages."

The price of rapeseed, an important ingredient in margarine, has risen by between 20 and 30 per cent over the past year. Meanwhile, the price of palm oil, another edible oil widely used in food as well as in cosmetics, has risen by more than 20 per cent in the past two months on news that Malaysia and Indonesia plan to set aside 40 per cent of their palm oil crop to produce biodiesel.

That will have knock-on effects on food, Mr Jope said. Half the cost of producing a tub of margarine is the edible oils and the price of those commodities has risen by 30 per cent this year. Even more worrying is the long-term consequence of substitution in risks to cardiovascular health. For every 1 per cent rise in the price of margarine, there is a 1 per cent fall in consumption, Mr Jope said. "The switch from healthy vegetable oils (to butter and animal fat) will have a dramatic impact on public health," he said.

Government grants and subsidies for biofuels are also having unintended environmental consequences in the Amazon and South-East Asia, where rain forests are being burnt to clear land for biofuel crops, such as palm oil, and sugar cane, used to produce ethanol. Figures from the OECD show that Europe would need to convert more than 70 per cent of arable land in order to raise the proportion of biofuel used in road transport to 10 per cent.

Mr Jope: "Superficially, it looks politically altruistic for a politician to say we are going to replace dwindling reserves of fossil fuels with renewable biofuels. We are now seeing the prospect of very material deforestation."

Unilever is not opposed to biofuels in principle but wants policymakers to shift the focus to next-generation biofuel technologies that turn wood chips and straw into fuel. These have less effect on the food chain and are better in cutting CO2 output, Mr Jope said.

Now let us reply:

1. First some historical facts and an unfriendly ad hominem argument: Unilever is a company built on colonial slave labor in West and Central Africa, Asia and Latin America. It built its business empire on destroying hundreds of thousands of hectares of pristine rainforest, for its own plantations, where it collaborated with imperial governments who used forced labor and gave Unilever a free ride.

For this history, see: Marechal, Jules. Travail forcé pour l’huile de palme de Lord Leverhulme, L’Histoire du Congo 1910-1945, Part III. Editions Paula Bellings. 396 pages. A book review in Ducth can be found here: "Bloed voor Sunlight zeep" ("Blood for Sunlight soap").

Unilever’s own plantations span the world’s tropical belt, where the company cultivates about 92,000 hectares of oil-palm, rubber coconut, cocoa and tea. The multinational operates in many countries including Cameroon, Ghana, Nigeria, the former Zaire, Colombia, Malaysia, Thailand and the Solomon Islands.

See the old, but well documented text: Planting Poverty.
Plantations - where the tea, coffee and vegetable oils we consume are grown - are central to Unilever’s international food business. Barbara Dinham looks at the plantations which the company now controls in the Third World and argues that they do not serve the real needs of poor countries.

Since then, the company has raked in billions in profits, so much so that today, it can talk about 'sustainability' and about dangers to the environment in the South. Unilever wants to deny farmers in the South to make a living. These farmers would dream of copying Unilever's history, but apparently the Anglo-Dutch company thinks its own past has been so horrible, that nobody should copy it.

Let's be superficially arrogant: if Unilever is so concerned about the environment, which it helped to destroy when it was building its empire, then we gently ask the company to pay farmers in the South for each hectare they do not convert into plantations. After all, Unilever has the money to do so. What is it waiting for?

To be blunt, we would like to refer Unilever to a text called "Nobody has to be vile". There it can read about its own hypocrisy.

2. More substantially, Unilever itself profits hugely from the EU/US subsidies that fuel its own feedstock production. The company itself still produces sugar, rapeseed oil, soy and corn. We would ask Unilever to help fight these subsidies, so that the farmers in the South can give consumers in the EU/US value for their money.

In this context we would want to refer to an article published just a few days ago: How European free trade would make biofuels viable. It captures the essence well. Here are some fragments:

What is less appreciated is that much of the subsidy biodiesel receives merely compensates for the import restrictions the European Union (EU) has put into agricultural markets. These restrictions are doubly damaging, as even with a compensating subsidy, raising input costs makes the economics of biodiesel production extremely volatile.

This volatility is due to an inherent disconnection in the economics of biodiesel production: input prices are dependent upon natural vegetable oil prices and the selling price of diesel is dependent upon world oil prices. So if oil prices fall and/or vegetable oil prices rise, biofuel production rapidly becomes uneconomic. So far the response to this problem across Europe has been to grant biofuels partial, or complete, exemption to fuel excise tax. This undoubtedly helps, but there is a far more robust market solution to hand.

The input cost of the vegetable oil feedstock accounts for some 85% of costs. Even a modest 10% price rise in input costs, without a commensurate rise in oil derived diesel prices, means production of biodiesel becomes completely uneconomic. But this assumes EU prices for feedstock. If EU producers were allowed to import and use as much vegetable oil as they wished, the result would be lower variable costs and the economics and sensitivities of production would rapidly change.


In essence, the rules allow farmers to make extra income from land they are already paid to leave fallow. But the granting of that privilege has a cost To protect food oils, the EU restricts the amount of non-EU palm and corn oils that can be used in producing biodiesel.
The European Commission has said it is willing to consider more reforms to the Common Agricultural Policy and that it sees the need to encourage the production of more biofuels. Unfortunately, it also wishes to “respect the interests of domestic producers”. The truth is that even a subsidised regime is not going to be as effective as the free market. Under present prices and with subsidies, biodiesel production makes economic sense. However, production is highly sensitive to minor variations in a number of input costs. Were biodiesel manufacturers able to cut the cost of their feedstock by 15% or more through buying vegetable oil on the open market, the result would not simply be a production process viable without a subsidy, but a more robust process less sensitive to variations in other input and productions costs and output prices.

3. The argument about the switch from healthy vegetable oils to unhealthy animal fats makes sense, and it is an unexpected consequence. But again, this is a mere side-effect of the fundamental problem of trade distortion. Why doesn't Unilever say a single word about the North's subsidies and protectionism? That's the kernel of the problem.


henriqueoliveira said...

My views exactly - American and European citizens are being ripped off so that a very narrow sector of society may profit.

Perhaps when people in the developed world start paying substantially more for food and fuel (something that is already happening and might drastically intensify over the coming MONTHS - not years), they will connect the dots and end subsidies to "farmers" like ADM and Louis Dreyfus.

1:32 AM  

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