Growing canola in a fuel hungry world

On one hand, new sustainability-linked government initiatives in North America and Europe will drive demand higher. On the other hand, constraints on supply growth will limit the supply response.

In the United States, the push from its federal and state governments to expand renewable biofuel consumption - and thereby reduce carbon emissions - is increasing the demand for canola.

The "low carbon fuel standard", which is a state-led initiative in California and Oregon, defines the carbon intensity of different feedstocks used in biofuel.

The lower the carbon intensity of a feedstock, the more carbon credits a renewable-biofuel processor can earn.

Canola has one of the lowest carbon intensities, along with used cooking oil and distillers' corn oil.

This makes canola a superior choice for use in renewable biofuel production than soy oil, for example.

If only canola was used as feedstock, Rabobank estimates a 130 per cent increase in hectares of canola - for the US and Canada combined - could be required to meet the demand of existing, under-construction and proposed renewable diesel refineries in the US by 2030.

With this "local" demand, Canada could no longer be a big canola supplier to Europe and Asia - which would leave a substantial market gap.

The European Union has recently increased its renewable fuel targets for the transportation sector from 10 per cent to 14 per cent by 2030, including crop-based, other renewables and advanced fuels made of waste products.

Crop-based fuels will be limited to only 7 per cent of transport fuels and, added to this, an increase in fuel-efficient and electric cars is expected to reduce total fossil fuel use.

Consequently, biofuel demand would drop by about 15 per cent.

This may sound like a negative prospect for canola, but the EU is also banning the use of most palm oil by 2030.

Palm oil currently accounts for about 25 per cent of the EU's renewable biofuel feedstock.

So, while the overall crop-based biofuels "pie" might shrink by 2030, the share and absolute tonnage of canola demand is expected to rise by about one million tonnes by 2025 - before easing towards 2030, as electric car adoption rises.

An EU supply-side response will be difficult as the EU adopts its Green Deal policies that will increasingly limit fertiliser and plant protection chemical use.

In China, we do not expect canola demand to be rising in coming years, as higher prices prompt a switch to other edible oils.

But we do not see demand falling significantly, either.

One region that could ease the expected canola deficit is the Black Sea.

In Ukraine in the next five to 10 years, increasing yields could lift production to four million tonnes from its current record level of 3.4 million tonnes.

This would partially offset, but not eliminate, the deficit in Europe.

The overarching story is that, while the world is going to become increasingly hungry for canola, there is simply not enough to go around.

The main risk for canola demand growth to watch out for - in our view - is a faster-than-expected adoption of electric cars.

This would reduce demand for fossil fuels and biofuels alike.