Financial crisis undermining biofuel market

What happen to smallholder biodiesel-material producers when major biodiesel consumers are bumping into financial crisis? This is likely a drastic situation after biofuel (both ethanol and biodiesel) market came up in highest demand last year.

Did you know the predicted consumption of biofuels by 2030 is just over 140 millions tons of oil equivalents? A recent report of RRI says this prediction is based on the ‘with subsidy’ case, which, in a very conservative estimate would require an additional 35 million hectares of land. This prediction was taken before the financial crisis come out.

In fact more 20 countries have set their plan to increase biofuel production for the next decade and more of them are issued regulations of mandatory consumption. Below are some countries with their biofuel policy:

  • Brazil will increase their sugar cane ethanol production up to 44 billion liters in 2016. Currently its production reaches 16 billion liters
  • China has set a plan to increase its corn based ethanol from 1.5 billion liters to 3.8 billion liters in 2016.
  • Indonesia and Malaysia as the main producer of CPO, the raw material for biodiesel, have planned to increase their production through both intensification and land expansion. This is likely a respond of the euro development biofuel market.

The RRI report concludes biofuel energy scarcity and political efforts to ensure energy security are already putting major pressure on forest areas, as well as agriculture production. This pressure is likely to increase.

The increasing of biofuel demand may imply benefit to smallholder palm oil farmers. Farmers have enjoying of high price of the commodity for years, until the global financial crisis emerges. The consumers decreasing their demand, thus it was lowering the price. In the mean time, smallholder production cost has no change. Now, smallholders are experiencing worst situation. They are getting close to the poverty line.

This crisis getting worse for the developing countries as their currency is depressed as seen in early2011. In this situation, there are no mechanism linking assistance from the richest country in the world to developing countries where smallholder biofuel maintain their crops.~

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