Food or fuel? The world can have both

By Naveen Thukral and Sambit Mohanty - Reuters Summit

SINGAPORE (Reuters) - Surging demand for vegetable oils and grains from the emerging biofuel sector is unlikely to create shortages for the food industry but may take a toll on demand as prices go through the roof.

Industry experts said spiraling prices of vegetable oils against a backdrop of declining petroleum prices could weaken the competitive footing for the biofuel industry and slow expansion, freeing up availability for edible oils for the food sector.

"There is no shortage of edible oil at the moment but prices have been driven higher by this talk of biofuels," M.R. Chandran, an independent industry analyst and a former head of the Malaysian Palm Oil Association, told Reuters.

"It has already made palm oil out of reach for many people in India and China where purchasing power is less," he told the Reuters Global Biofuels Summit.

Georges Mercadal, director of Singapore-based CMS Resources, said: "I do see the potential for inflationary push because the demand for fossil fuels is going up."

Crude palm oil, the main raw material for biodiesel, now costs $554 a ton, after gaining some 40 percent in 2006. And crude petroleum is quoted around $361 a ton, down more than 34 percent from the record high of $551 in July last year.

Malaysia and Indonesia, the world's two leading palm oil producers, have set aside six million tonnes each from their annual output for the making of biofuel.

But industry officials said it would take a long time for that quantity to be used up because of a lack of processing capacity.  Continued...