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Commodity Crops, Biofuels and a Volatile Market

27 February 2011

Energy and the agriculture sector are intrinsically linked and how the energy sector behaves has a decisive effect on agricultural markets and performances, writes TheBioenergySite senior editor Chris Harris.

Paul Conway, Cargill senior vice president.

Speaking at the recent UK National Farmers Union conference, Paul Conway, the senior vice president at international feed processing company Cargill said that the volatility in the energy markets has a direct impact on the performance of agriculture around the world.

He said that more and more grain and vegetable oil is being turned over to the production of biofuels.

In the US the amount of grain that is being sent to produce ethanol ahs increased to about 160 million tonnes and next year ethanol is expected to be the largest of consumer of the US maize crop.

At present ethanol consumes about 40 per cent of the grain produced in the US and from the 200,000 to 250,000 tonnes of vegetable oils produced in the EU a similar 40 per cent goes to biodiesel production.

"This has a very small impact on the energy sector, but it has a tremendous impact on agriculture," said Mr Conway.

He said that farms now have to pay as much attention to the energy markets as they do to the food markets and the way that fuel and energy is now affecting the agricultural sector has a huge impact on farm input costs.

Mr Conway said that the global agriculture sector faces major challenges as it has to meet the needs of a growing population that is becoming increasingly wealthier.

Rising incomes around the world mean that people are seeking better diets and the population growth will mean that the world will need 40 per cent more food over the next 20-25 years.

However, Mr Conway said that global agriculture has met this need before over the last 30 years and without increasing land use to any great degree.

The demand will be to meet the increased need for wheat, sucrose and meat as incomes start to rise above subsistence levels and people are being lifted out of poverty.

However, the rise in incomes and the increased demand for food also has to be balances with the increase in demand of energy and the volatility of the energy markets.

In the long-term there has to be an increased investment in agriculture's infrastructure, globally.

Mr Conway also warned that globally grains had to meet not only the challenge and demand of the biofuels industry but also the ups and downs of world commodity markets.

He said that commodities such as grains had been seen as a hedge against inflation, particularly over the last two years when interest rates have fallen.

In the last year, however, world markets saw 80 million tonnes of grain knocked off global production estimates because of failures of the wheat crops in Australia and Russia.

Mr Conway said that some of the problems that have arisen in the Middle East in recent weeks have been a direct result of food price inflation that has come out of the disastrous harvests in Russia and Australia last year.

But now agriculture for the first time has been placed high on the agenda for the next meeting of the G20 nations and world leaders are putting food security to the top of their list of priorities.

The bright light for the world agriculture sector in the near future is that there is expected to be an increase in investment in agricultural infrastructure and in research and development.

Mr Conway said that as Russia so far has been the only country to place a ban on exports of grain, he felt confident that worldwide trade will help to stabilise international markets.

He said that volatility in global agricultural commodity markets is expected to remain for some time and the sector needs to find a balance between intensification and sustainability. One answer, he said is technology.

February 2011

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