23/01/2008
How to address the impact of the bio-fuel development in the EU on the supply of raw materials for the food and drink industry
Introduction

The development of bio-fuels bears considerable challenges for the food and drink industry. It can quite fundamentally change the demand and supply situation in agriculture and the expectations with regard to the CAP. The fact that many bio-fuel programmes are promoted around the globe is likely to contribute to higher price volatility and long term structural price increases on agricultural markets.

To maintain a sustainable EU food and drink sector, industry must rely on competitively priced agricultural raw materials of appropriate quality and quantity. Market monitoring, and support for the diversification of bio-fuel sources in view of preventing tensions in certain sectors were, until recently, the main action envisaged by the Commission to look at agricultural supply. However, it has become clearer in the last months that this is insufficient to anticipate future shortage of supply and to provide appropriate responses. Neither will it reverse the longer term impact on agricultural markets. This paper examines what is necessary to anticipate developments and ensure that ultimately the global costs related to this policy do not outweigh its benefits.

Outlook

The Commission’s impact assessment, released in the course of July 2007, envisages a scenario in which 30 % of domestic bio-fuel needs would be covered in 2020 by second-generation bio-fuels and which, according to the Commission, will not overly stretch the land availability. The assessment stresses, however that “a lower share of second generation feedstock particularly in the BTL field would increase the reliance on imports of oilseeds and vegetable oils”.

From a general point of view, bio-fuel policy needs to be examined as regards its ability to contribute to meeting the policy objectives, including as to greenhouse gas (GHG) reductions and energy efficiency. As user of agricultural raw materials, CIAA is particularly interested in raw material availability and has carried out an assessment(1) of the impact on production and demand. This assessment has not led to the same level of comfort and certainty as regards the likely scenarios, on EU production of feedstock for food and non-food markets, and on the possibility of substituting a potential lack of EU second generation bio-fuels.

In its assessment, CIAA has looked at bio-diesel and bio-ethanol distinctly and has taken a cautious and balanced approach towards both bio-fuels and food demand.

The CIAA analysis of production and demand situation appears tighter than in the Commission assessment.

• Firstly, CIAA anticipates that certain factors could reduce the availability of agricultural raw materials;
  • Increased weather risks (droughts, floods, etc);
  • Asynchronous GMO approvals;
  • Sustainability requirements, notably as this will also apply to imported raw materials for bio-fuel production (i.e. need to reduce GHG emissions, biodiversity concerns and limited water resources);
  • Increased world population and incomes, leading to increased demand, notably from Asian markets, i.e. China and India.
• Secondly, CIAA has taken a more cautious approach for the development of second-generation bio-fuels by 2020 than the levels indicated by the EU-Commission in its assessments issued in January and July 2007.

Of course, all situations and exceptional circumstances cannot be anticipated but they can quite considerably affect production and supply in agricultural raw materials within the EU and worldwide.

The diverging views with regard to import possibilities and availability of second-generation bio-fuels lead to different assessment of risks related to bio-fuels development for agricultural markets and hence for food production.

Key food and drink industry demands

For CIAA, the development of bio-fuels needs to be accompanied by measures or instruments that prevent major market imbalances and disruptions which would prove damaging for the EU food and drink industry and for European consumers alike.

1. CIAA supports the caveats in the 2007 Spring Summit conclusions which state that the 10% binding minimum target for bio-fuels in 2020 proposed by the EU Commission, must be introduced in a cost efficient way and be subject to production being sustainable and second generation bio-fuels becoming commercially available. However, CIAA’s assessment is that there is a high risk that these conditions will not in fact be met. Member States need flexibility to develop renewable energies according to their specific potential and national capacities and by differentiating bio-diesel and bio-ethanol markets.
2. This approach should be supported by a review clause in the legislation to allow for a re-assessment of the situation, in 2010 and in 2015, with regard to the availability of second-generation bio-fuels. If it appears that second-generation bio-fuels are not becoming as commercially available as outlined in the Commission assessment the target and or their implementation must be revised.
3. The EU should facilitate access to agricultural raw materials by addressing trade barriers to EU imports, such as asynchronous GMO approvals, and by discouraging trade distorting practices, such as differential export taxes.
4. Measures functioning as temporary mechanisms will be needed, in the absence of other options, to prevent crisis situations, such as serious market imbalances and supply shortage in agricultural raw materials. The Commission should work on concrete criteria to trigger such temporary action (TRQ opening, temporary suspension of tariffs, target opt-out clauses).
5. The EU agricultural sector will have to respond efficiently to an increasing demand for agricultural products. In this context, a large majority of CIAA members support a permanent ending of the set-aside scheme as this tool is no longer appropriate considering that support is no more linked to production. Moreover, it would provide flexibility to farmers who could grow any crops on this land. Furthermore, in the context of the EU bio-fuels policy, the energy crop premium should be reconsidered.
6. The EU Commission should also improve and formalise existing monitoring mechanisms, introducing a feedstock observatory to look closely and regularly at availability and price of agricultural raw materials and anticipate trends.
7. Bilateral or regional agreements should provide a framework for enhancing sustainable grains and oilseeds production in developing countries, notably through improved market access to the EU and EU development aid.

(1)  TCO/230/07 CIAA assessment on the impact of bio-fuels development on the availability of agricultural raw materials

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