How biofuels and rising incomes impact grain and oilseed demand

Russia’s invasion of Ukraine and poor seasonal conditions in North America in 2022 have created spikes in world prices for grain and oilseed (See Figure 1). 

However, 2 long-term factors are likely to increase global demand for grains and oilseeds over the next decade. These are:

• demand for animal feed, which is linked to rising meat consumption
• increased use of biofuels.

Figure 1: International Grain Council Oilseeds Index, January 2000 to August 2022

Meat consumption rises with wealth

Dietary preferences are closely linked to income levels. Meat consumption tends to increase as people and countries become wealthier. (ABARES 2019)

• Yearly per capita meat consumption in China rose from 15.6 kgs in 1990 to 45.2 kgs in 2022.
• Yearly per capita meat consumption in Vietnam rose from 12.1 kgs in 1990 to 51.4 kgs in 2022.

Figure 2 shows per capita meat consumption and GDP per capita for China, India, Indonesia and Vietnam between 1990 and 2021.

Figure 2: Meat consumption and GDP per person, selected countries, 1990 to 2021

Over the last three decades, rising incomes in China and Vietnam have resulted in substantial rises in meat consumption. In contrast, slower income growth in India and Indonesia has resulted in lower rates of meat consumption.

• Despite recent increases, meat consumption in China and Vietnam remains substantially below Australia (89.2 kgs in 2021) and the United States (100.4 kgs in 2021).
• This indicates that meat consumption growth in China and Vietnam could increase further as incomes continue to grow.
• India (population 1.39 billion) is expected to see substantial GDP per capita growth from US$2,280 in 2021 to US$3,770 in 2027. It is likely meat consumption will increase as a result.
• Global meat consumption would rise by approximately 7% if consumption of meat in India rose to just half the current level in China.

Growing demand for beef in lower- and middle- income countries will likely outpace any potential easing of demand in wealthy countries. (OECD-FAO 2022).

What does rising meat consumption mean for grain demand?

While some livestock animals only feed on grass, much of the world’s livestock is fed on grain.

• One kilogram of beef requires approximately 25 kgs of feed grain
• One kilogram of pork requires approximately 6.4 kgs of feed grain
• One kilogram of poultry requires approximately 3.3 kgs of feed grain (Alexander et al, 2016 )

As demand for meat increases, demand for animal feed will also increase. The grain-intensive nature of livestock production means that relatively more grain is required when people consume calories through meat, as opposed to consuming grains directly.

Growing demand for meat and grain will help support the value of Australian exports and will continue to create opportunities, particularly for feed grains, beef and lamb.

Increased use of biofuels will drive demand

Over the last three decades, biofuels have become an increasingly important source of energy (See Figure 4).

• Biofuel production has increased by 46% from 1.2 million barrels per day in 2011 to 1.8 million barrels per day in 2021.
• In 2021, biofuel production accounted for 1.9% of combined crude oil and biofuel production, up from 1.4% in 2011.

Figure 3: Global oil and biofuel production, 1990 to 2021

Transportation is the largest consumer of biofuels, predominately through blending with petrol and diesel. There are two main types of biofuels:

• Ethanol, which is usually produced from grains such as corn, sugar and wheat.
• Biodiesel, which is usually produced from oilseeds such as soybean oil, palm oil and canola oil.

Biofuel production creates demand for grains and oilseeds that is independent of demand for food or animal feed.

Biofuel mandates increase price volatility. This is because buyers must continue to purchase grains and oilseeds to meet the biofuel mandate, regardless of current grain prices or availability (McPahil and Babcock 2012).

Figure 4: Global use of grains, 2019 to 2031f

More than 60 countries have biofuel mixing requirements. Policies in the US and the EU are the most impactful.

• The United States introduced the Renewable Fuel Standard (RFS) in 2007 which requires a certain volume of fuel to be composed of renewable biofuel.
• The European Union introduced the Renewable Energy Directive (RED) in 2009 (revised in 2018). This sets a goal of 32% renewable energy use by 2030.

As of September 2022, high grain and oilseed prices are leading some countries to reduce biofuel mixing requirement or temporarily suspend mixing requirements. This includes Finland and Latvia. However, most major biofuel mandates remain unaltered.

Biofuel demand is forecast to rise from 146 billion litres in 2020 to 186–342 billion litres in 2026. Future biofuel-related demand for grains and oilseeds will depend on four factors:

1. Government policies which mandate or encourage biofuel use, especially in the US, Europe, India and China.
2. The price of grain and oilseeds relative to the price of other energy sources.
3. Demand for petrol and diesel. In most cases, biofuels are blended with petrol and diesel. This means demand for biofuel is affected by the demand for petrol and diesel. A Widespread uptake of electric vehicles could reduce demand for biofuels.
4. The economic viability of advanced biofuels that do not use staple food products.

Australia is already a major supplier of canola to the EU for use in biofuels. If implemented, the European Parliament’s plan to reduce the use of palm oil and soya in European biofuel production will support increased demand for Australian canola seeds in the coming years (ABARES 2022).

Resources

The Australian Government’s network of Agriculture Counsellors provided information for this article. More information about the Agriculture Counsellor network, including contact details, is available on the Department of Agriculture, Fisheries and Forestry website.