With the harvest season upon us, there appears to be growing optimism in the arable sector. The main reason is the increasing interest in bioenergy and the effect this is having on crop values.
The high price of oil and Government incentives has stimulated a rash of new projects to exploit the opportunities available in the arable sector. This, together with other developments, could fundamentally change the dynamics of the UK combinable crop sector. However, this growing enthusiasm needs to be tempered with a dose of realism, as we shall see later.
The bioenergy market can be roughly divided into two categories. The first is where biomass (plant material/energy crops) is combusted to produce electricity or combined heat and power (CHP). There have been some problems with getting this sector up and running, as highlighted by the failure of the ARBRE plant at Selby back in 2002. However, progress is now being made. The Renewables Obligation Order 2006 has led electricity generation companies towards co-firing coal power stations with a proportion of energy crops, such as short-rotation coppice or miscanthus. In time, more biomass power stations are likely to be developed.
There is also interest in small-scale generators, perhaps even at farm or estate level, to reduce energy costs and to save/avoid having to transport the bulky biomass over long distances. However, many growers remain wary of these energy crops because they are unfamiliar, have a limited number of buyers, and require a longterm commitment of land. This is perhaps why biofuels, the second category of bioenergy, has tended to be the focus of farmer interest to date.
Biofuels are produced from biomass and used as liquid fuel replacements for diesel and petrol in vehicles. The Government has targeted this sector with the introduction of the Renewable Transport Fuel Obligation (ReTFO). This requires that by 2010, 5% of all forecourt road transport fuel must come from renewable sources. There are two main types of biofuel that can act as replacements for petrol and diesel: biodiesel, which comes from vegetable oils such as oilseed rape (OSR), and bioethanol, which comes from starch-based products such as wheat or sugarbeet.
The ReTFO has spurred a flurry of activity in setting up production facilities for biofuels, with the following being some of the largest developments planned or already underway.
Biodiesel projects
Biofuels Corporation
Greenergy
INEOS Enterprises
The INEOS plant may also include an oilseed crushing facility. This would be very beneficial, especially to Scottish OSR growers, as currently the crop has to be transported to Liverpool or Hull for crushing, or exported.
Crushing capacity is a major constraint on the development of the industry and Tees Valley Biofuels is also planning a new 500,000 tonne crushing plant on Teesside. To produce one tonne of biodiesel (equivalent to 1,140 litres of fuel) takes around 2.4-2.6 tonnes of rapeseed (depending on oil content and crush efficiency). Adding to biodiesel production are various plants around the country that convert waste vegetable oil used in catering into fuel.
Bioethanol projects
British Sugar
The consortium has announced that, subject to the performance of this first plant, it will be looking to build further facilities using cereals as the main feedstock.
Wessex Grain
Wessex Grain has planning permission to build a plant at Henstridge on the Somerset/Wiltshire borders. Production should reach 100,000 tonnes of fuel and is expected to commence in early 2008. The principal feedstock will be feed wheat, requiring approximately 330,000 tonnes per year.
Green Spirit Fuels (a spin-off from Wessex Grain) has plans for further plants. The first is to be on Humberside and will be twice the size of the Hentsridge facility, taking 650,000 tonnes of grain a year from early 2009. Others may follow, probably in East Anglia initially.
Bioethanol Limited
A plant near Immingham with an annual production cap of 100,000 tonnes of fuel is planned. Centaur Grain has been contracted to provide the 325,000 tonnes of wheat needed when the plant commences operations some time in 2008. Centaur is offering contracts through to 2012, with the base price rising to £89.25 per tonne by the 2012 harvest and excluding energy aid, starch premiums and late-season payments.
Roquette
This French-owned food group based in Corby, Northamptonshire is looking at installing a 190,000 tonne bioethanol plant.
Many worry that, for example, with climate change and population growth biofuels will take up valuable land that could, and should, be used for growing food. There are also questions about the energy balance of these crops once the fuel used in, for example, cultivations and fertiliser is included in the equation.
Perhaps these current projects are best seen as a way of crops gaining entry to a market that has hitherto been dominated by fossil fuels. The hope is that further down the line, secondgeneration biofuels will answer some of these criticisms. These involve techniques that use enzymes to convert starch materials directly into liquid fuels. Therefore, any starch-based material, including that currently regarded as waste, such as straw or even household rubbish, could be a potential feedstock.
Although all of these developments are welcome, it is worth sounding a note of caution.
- These investments are being made due to a combination of high oil price and Government support through legislation, neither of which is guaranteed in the long term.
- The companies investing are commercial operations and not simply there to help farmers. Farmers growing crops for any of these markets are, in effect, still producing commodities. It is essential that UK producers are efficient enough to compete, otherwise the feedstocks for this emerging industry can just as easily be imported from overseas. (It is noteworthy that many plants are being sited at deep-water ports.)
Despite this, all this new demand has to be good news. Combined with the new ‘Cerestar’ starch manufacturing facility opening in Manchester, domestic demand looks set to grow by 1,000s of tonnes. This opens up the possibility that the UK market could move from a situation where prices are set by export parity to one where prices are at import parity. This, in itself, could be worth up to £6-7 per tonne before any, more general commodity price rises are factored in.
Livestock producers may feel that this will work against them – higher grain prices making feed more expensive. But many of these plants will be generating by-products that will be looking for an outlet.
We are grateful to Andersons, the farm business consultants, for their contribution to this bulletin. We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Limited 2006.
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