Increased biofuel requirements could intensify competition for corn, rice, sugar, and vegetable oils by 2030, potentially raising agricultural commodity prices. This issue has been examined in a recently published report.
Increased Demand for Agricultural Land
The report published by Chatham House and the Forest Stewardship Council indicates that increased biofuel targets could create a need for an additional 36 million hectares of agricultural land globally by 2030. This area is roughly the size of Germany. According to the report, this estimate refers to additional pressure on agricultural land due to the stated requirements and targets and does not imply the anticipated clearing of 36 million hectares of forests.
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In 2023, about 32 million hectares were used for biofuel feedstock production, and it was projected that existing demand would require an additional 20 million hectares of land by 2030. However, recent increases in government targets could raise the total land area needed to about 68 million hectares.
Competition in the Corn and Vegetable Oil Markets
The corn markets are among the most at risk from the rapid expansion of biofuels due to the scale of existing demand for ethanol. Nearly 40 percent of U.S. corn demand is met by ethanol production. New federal targets could push overall biofuel needs to unprecedented levels, including a 60 percent increase in biodiesel and renewable diesel production.
Further growth in corn-based ethanol could heighten competition among fuel producers, feed suppliers, exporters, and industrial users, especially if supply is disrupted due to adverse weather conditions or rising fertilizer costs. Vegetable oil markets may also face similar pressures due to increased requirements for biodiesel and renewable diesel.
Palm oil, soybean oil, and other edible oils are used in both food and energy markets, making prices sensitive to changes in mandatory demand and feedstock eligibility.
Impacts in India and Indonesia
The report highlights India as a significant example of growing competition between food, feed, and fuel markets. India is rapidly expanding its ethanol blending program, with corn recognized as the primary feedstock for ethanol. Additionally, 5.2 million tons of rice have also been allocated for ethanol production.
This increased demand for ethanol has created a new market for Indian wheat producers. However, the scale of future divergence will still be significant for domestic corn balances, as the feed and starch industries are also heavily reliant on corn supply.
On the other hand, Indonesia's move towards a 50 percent palm oil biodiesel blend could have significant impacts on the supply and trade of vegetable oils. The country has restricted exports of certain feedstocks to meet its domestic needs, which could put additional pressure on forests and agricultural production in environmentally sensitive areas.
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