Global demand for biofuels to slow in decade ahead, says forecast

Source: By Chuck Abbott, Successful Farmer • Posted: Monday, July 4, 2022

Corn will become less important and sugarcane will become the dominant feedstock for making ethanol in the coming decade, said an agricultural outlook published jointly by the OECD and FAO on Wednesday. The report forecast a relatively slow growth rate for biofuels, averaging 0.6% a year worldwide, with growth in the United States constrained by declining gasoline consumption.

Although biofuel demand grew by an average of 4% a year in the past decade, said the OECD-FAO Agricultural Outlook, a sharp slowdown is expected in the years ahead, “mainly due to declining fuel use and weaker policy incentives in high-income countries.”

According to the OECD-FAO report, “Most additional demand will originate in middle-income countries, driven by higher blending rates and subsidies supporting domestic production.” It estimated that production would total 140.4 billion liters (37 billion gallons) in 2031, compared to 124.7 billion liters now.

India would account for half of the additional global consumption of ethanol through 2031, and consumption would also continue to climb in Brazil. Both nations use sugarcane as their feedstock. By 2031, nearly a quarter of sugarcane would be used to make biofuels. India has a goal of 20% ethanol — E20 — in all of its gasoline.

“In China and the United States, growth prospects for ethanol consumption are limited,” said the OECD-FAO report. China proposed an E10 mandate in 2017, but its shrinking corn stockpile is expected to deter implementation. “It is assumed that China will maintain a lower 2% blending rate over the projection period,” said the report. “In the United States, declining gasoline use, together with the 10% ethanol blend wall, will constrain growth in ethanol consumption.”

The share of the global corn crop used to make ethanol was projected to drop to 14% in 2031, down from the current 15.5%. The USDA projects that 37% of this year’s corn crop will be used for ethanol.

Biodiesel consumption was projected to increase 7% by 2031, with Indonesia accounting for 77%t of the growth. The nation has a goal of a 30% mix of vegetable oils in diesel fuel. “In the United States and the European Union, however, declining diesel use will constrain the growth in biodiesel consumption,” said the report.

The war in Ukraine has created great uncertainty about grain supplies and prices in the near term, said the OECD and FAO. Global wheat prices would increase 19% if Ukraine, one of the leading sources of wheat on the international market, was unable to export any of its harvest. The price increase would be as high as 34% “in the extreme scenario where Russian exports are also affected” and reduced by 50%, said the report.

While commodity prices, which surged following the Russian invasion of Ukraine, “may remain high in the 2022/23 marketing year, they are expected to subsequently resume their long-term declining trend in real (inflation-adjusted) terms,” said the report.

The web page for the OECD-FAO Agricultural Outlook is available here.