The seeds of inflation

The biofuel value of oilseeds such as rape will become even more inflated and oilseed price margins greater than wheat and sugar beet if biofuel production continues to expand, according to one farming expert.

This is because bioethanol - made from carbohydrates such as sugar - has two-thirds of the energy value of petrol. That is unlike biodiesel made from oilseeds, which replaces diesel almost one-for-one in energy terms, said Martin Todd, md of agricultural consultancy LMC International.

The situation would be more pronounced if prices reflected their different energy values, as the price of ethanol produced from sugar does in Brazil, where it is 65% that of petrol, said Todd.

"It's a reality that will have a potential effect on the relative value of these two fuels," said Todd, speaking at the Home Grown Cereal Authority's grain market outlook conference. "When blend rates increase ethanol will be priced at its energy value." However, he also insisted: "Biofuels don't inflate crop prices ... high oil prices do."

In the EU, unlike Brazil, modest blends allow ethanol to benefit from price parity with petrol. Demand for biofuels would only reach its full potential if they could compete with petrol and diesel on price, Todd added.

Meanwhile, Sainsbury chief executive Justin King has come out strongly against the use of biofuels in this part of the world. "There is no case for biofuels in the northern hemisphere; there is for perennial crops in the tropics," King said at this year's IGD convention.

Demand for oilseed crops around the world in food manufacture is growing at twice the rate of grains, said Todd. As a result, the world needed more land for oilseeds and biofuels, rather than for grains and sugar, he claimed. "Biofuels are clearly going to add substantially to increasing demand for land for these crops."

But, he added, if supply could not keep up with demand, crop prices would increase and this would reduce biofuel demand. "As long as the demand for food crops is greater than the ability to supply them, the prices will stay high and the demand for biofuels will switch off," said Todd.