Navigating vegetable oil markets amidst shifts in biofuel policies

Accounting for about a quarter of global energy use, transportation is a major contributor to global greenhouse gas emissions. Against this background, transitioning to renewable energy in this sector will be crucial to meeting the climate goals outlined in the 2015 Paris Agreement.
In view of the growing demand for renewable energy production, the global utilization of the four main vegetable oils – palm, soy, rapeseed, and sunflower – has shifted significantly over the past twenty years. While these oils were almost entirely consumed as food in the early 2000s, about 27 percent are now destined for energy production. This trend has recently accelerated further, driven by rising biofuel consumption in some large economies, including Brazil, Indonesia, and most importantly the United States of America, where the capacity for renewable diesel production is projected to quadruple by 2024.
Similar to other countries with large biofuel industries, the boom in the United States has been influenced by regulatory frameworks such as the Renewable Fuel Standard (RFS) and the California Low-Carbon Fuel Standard (LCFS), which have set ambitious targets for low-carbon fuel use. Mechanisms such as the biomass-based diesel blender credit (BTC) and Renewable Identification Numbers (RINs) have been equally important as they have encouraged industry participation. RINs, for example, not only track production, blending and compliance of renewable diesel in the United States, but they also serve as a key profitability indicator for the sector as they can be traded in markets.
Blending mandates have sparked a rush among US fuel producers, encouraging them to convert their existing fossil fuel plants into renewable diesel production facilities and causing a surge in demand for vegetable oils and used cooking oil. As a result, however, the sector is currently experiencing a margin squeeze that risks impacting the entire supply chain from the level of the crusher all the way up to the farmgate. Policy changes are already underway with the BTC scheduled to be replaced by the Clean Fuel Production Credits (CFPC) by the beginning of 2025, which aim to reduce competition from imported biodiesel and boost profitability of US producers. Given the size of the US market, this transition will undoubtedly have an impact on global vegetable oil supply and demand fundamentals.
The developments in renewable energy production underscore the dynamic and constantly evolving landscape of vegetable oil markets as they sit at the intersection of the food-energy equation, which will require close monitoring and analysis. Understanding better the impact of biofuel policies on vegetable oil supply and demand will thus be a critical part of the work being undertaken by AMIS in this sector.