How long will the energy crop euphoria last?

Estimates are that, in three years time, as much as 11 per cent of Europe’s farmland could be devoted to bioenergy crops. But stiff competition from Brazil and other low-cost producers and other-low-cost producers is just one of the possible clouds on the horizon

Attending farming exhibitions this winter in Europe was an exhilarating experience. From EuroTier in Germany and Agromek in Denmark to Ukraine’s InterAGRO, exhibitors were more than excited over what appeared to be an extremely infectious outbreak of optimism among their farmer visitors.

For one thing, machinery sales have soared. Lemken, the famous plow-maker and German market leader in cultivation machinery, reported even before the end of last year that its order books were full for four months ahead. Livestock equipment is being snapped up as fast as it is being produced. This is especially so for hog buildings, with today’s high pork prices encouraging expansion.

What’s really behind this wave of optimism? It might have started with the wheat prices at harvest, which were better than expected all over. By the turn of the year, these prices had reached the equivalent of $205 Cdn a tonne, even for feed samples.

Potatoes might have helped the mood, too. Table potatoes known as “eating ware,” price is up nearly 40 per cent on the year at around $280 Cdn a tonne. On the continent, the summer of the century in 2006 pushed prices for good processing potato samples even higher, simply because there was no rainfall in the critical June-July phase and size turned out to be very poor.

But those really in the know say that the European agricultural euphoria is really due to the biodiesel and ethanol boom, not to mention the rapid expansion of crop-fed biogas plants in Germany and Austria. Speak to any big arable farmer and most will say that they smell a new market ahead, and one much more stable than producing for the volatile food and feed outlets. According to the University of Hohenheim in Stuttgart, Germany, around 50 million acres of farmland in the European Union will be cut, composted or harvested for bioenergy in just three year’s time. That’s 11 per cent of all farmland.

Even more spectacular are the projections for 13 years further down the road. Then, over 20 per cent of the farmland could be dedicated to growing for biogas or biofuels, say those who are studying the trend. No wonder grain and oilseed buyers purchasing for classical food and feed are getting nervous and stepping into the markets, as they did last August, to buy up grain before the combines have even dropped their cutter bars.

Now, this is all great for the farmers and machinery manufacturers in Europe. But markets are already complaining that the price of vegetable oils has soared since biodiesel demand really took a bite out of the available crop. And what’s going to happen to the feed costs of livestock producers if the growth of energy cropping continues?

The more far-sighted amongst Europe’s agricultural strategists and economists are already pointing out that, as long as global trade regulations allow it, there’s very little chance of the high-cost European bioenergy production reaching the levels mentioned above. There are two main reasons for this.

One, Brazil and other countries growing sugar cane can produce bioethanol much more cheaply than Europeans can and, say the far-sighted, it will only be a matter of time before Europe is importing a good share of its biofuel needs from down south.

Secondly, Biomass To Liquid (BTL) systems are being developed fairly speedily. These produce far superior gasoline or diesel fuel from by-products like straw or a variety of wholecrops harvested green. BTL is more efficient than the present biofuels and should be with us commercially in 10 years’ time. In fact, some developers in Germany are promising that it will be on the market in just four years.

When one or both of these developments happen, then experts predict the share of good farmland growing energy crops will slide back dramatically. There’s another mark against today’s bioenergy crops, too. If they weren’t so highly subsidized by national governments and the European Union, they would never be able to compete even with today’s soaring fossil fuel prices. So any farmer putting all his eggs in the energy-cropping basket will have to keep a very wary eye on medium-term government policies.

But, for now, European politicians are still committed to more home-grown biofuels. Germany, for instance, introduced a 4.4 per cent blend of rapeseed oil biodiesel in all conventional diesel in January this year and now the government want to increase this to nine per cent.

Among farmers and even economists, the energy crop euphoria continues. But it will be interesting to see what happens to feed costs and some food prices in the present year and how the different governments will react.

Me? I’m planning to bulk buy bread and steaks for the deep freeze now! BF

Norman Dunn writes about European agriculture from Germany.