Europe's Biodiesel Plight Is Bad News for its Rapeseed Farmers

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(Bloomberg) -- The crisis engulfing Europe’s biodiesel industry could spell bad news for rapeseed farmers in the region, the world’s No. 2 grower of the crop.

Biodiesel producers are struggling to compete with cheap imports from Argentina, and things could get worse after a European Union court challenged anti-dumping duties on Indonesian supplies. Plants have already halted some output and more cutbacks would curb demand for EU rapeseed oil, about two-thirds of which is used to make the biofuel, an industry group said.

Producers such as France’s Avril Group are among companies to cut biodiesel output because of the low-cost Argentine supplies, which EU lobby groups have argued are unfairly subsidized. The threat to rapeseed, which is crushed into meal for animal feed or oil to make biofuel, comes as prices are near the lowest in more than two years and European output is rising.

“Most biodiesel plants are either producing at a loss or slowing down or stopping production and there are already companies that are going bankrupt,” said Raffaello Garofalo, secretary general of the European Biodiesel Board in Brussels. “The big risk now is that all of this is going to be transferred to agriculture because soon there will be a rapeseed harvest, but it will be good for nothing if there is no biodiesel production in Europe that carries on.”

Paris rapeseed futures have dropped 19 percent from a peak in early 2017 as demand sagged and supply increased. EU farmers, who had expanded plantings amid higher prices, will harvest 22.6 million metric tons for the coming season, the most in four years.

Demand for EU rapeseed could drop another 20 to 30 percent because of less usage in the biodiesel industry, which could push prices for the crop down almost a third, according to farmers’ group Copa & Cogeca.

“The shutdowns and production cutbacks carried out by European biodiesel producers will continue to increase the pressure on the volume and pricing on the market for rapeseed oil and rapeseed,” said Wolfgang Vogel, chairman of the Union for the Promotion of Oil and Protein Plants.

The European Union in September lowered tariffs on biodiesel from Argentina by about two-thirds to comply with a World Trade Organization verdict, after duties were imposed in 2013 to punish companies for alleged dumping in Europe. In March, an EU court asked the bloc to remove anti-dumping duties imposed on Indonesian products.

European companies that are producing at a loss will probably have to halt production, according to the EBB. To show how fierce the competition is, some Argentine producers are selling biodiesel below the cost of soybean oil, which can also be used to make the fuel, it said.

“It’s like they are able to sell a bike at a price lower than the steel used in the bike, so it doesn’t make sense,” Garofalo said.

EU rapeseed demand is also being curbed by the fact that a shortage of Argentine soybeans is making it more attractive for EU processors to crush local beans into soybean meal, rather than processing rapeseed.

“Cheaper imports from Argentina is just one of the reasons behind easing prices,” said Owen Cligg, trading manager at United Oilseeds. “EU crushers can make better money on crushing soybean than rapeseed. This is also adding to price pressure on rapeseed.”

©2018 Bloomberg L.P.

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