Food

Bakers: Not a good time to raise biodiesel RVOs



WASHINGTON – The American Bakers Association has sounded an alarm, warning bakers’ access to soybean oil is in crisis. 

“We are extremely concerned about the available edible oil supply competing with the current demands of biodiesel production using food crops,” Robb MacKie, president and chief executive officer of the ABA, told Milling & Baking News.  “Some wholesale bakers will likely be unable to access soybean oil by the end of this year because they cannot compete in the marketplace and are unable to procure soy oil needs at any price.”

Mr. MacKie cautioned, “It is not the right time for increased biodiesel volumes. The government directive, at the moment, prevents the baking sector from being able to obtain a reliable supply of edible oils as producers divert supply away from food manufacturing and to renewable biodiesel production. ABA believes that a pause on biodiesel and advanced biodiesel under the Renewable Fuel Standard Program (RFS) is the best solution to provide temporary relief for the baking sector as the industry grapples with supply chain hurdles across the board.”

The RFS, which is implemented by the Environmental Protection Agency in consultation with the US Department of Agriculture and the Department of Energy, requires that a designated volume of renewable fuel, such as corn-based ethanol or biodiesel and renewable diesel, whose feedstocks prominently include soybean oil, replace or reduce the quantity of petroleum-based transportation fuel, heating oil or jet fuel. The required volumes are called Renewable Volume Obligations (RVOs).

 The EPA’s last adjustments to the RVOs applied to 2019. The question before the EPA now is for determining RVOs retroactively for 2020 and 2021 and designating required volumes for 2022. Its expected announcement, should it come in the next several days or few weeks, will be in the form of a proposal with finalization of the RVOs due in November, if previous protocol is observed, Brian Harris, executive director and owner, Global Risk Management, told Milling & Baking News.

“Given the USDA’s current projection for 11 billion lbs of soybean oil use for biodiesel in 2021-22, the mandate would have to be raised 800 million gallons,” Mr. Harris observed.

The recent emergence of renewable diesel technologies, which allows diesel fuel to be manufactured directly from feedstock such as refined soybean oil without need for blending with petroleum-based diesel, has been a gamechanger.

“It changes the edible oil structure long term as crushers now have another large, consistent outlet for their product and will weigh food versus fuel to maximize their margins,” Mr. Harris said.

He added expanding demand from the renewable fuel sector has accounted for about 90% of the breathtaking moves in both soybean oil futures and basis in recent months.

“Many capacity expansions have been announced for both soy and canola in North America in recent months, but they will lag the renewable diesel buildout by about a year,” Mr. Harris commented.

Lee Sanders, senior vice president of government affairs at the ABA, said bakers have been meeting with members of Congress and regulators on the issue.

“We thought it was important to paint the picture of what the supply crisis means for food manufacturers of all sizes,” Ms. Sanders said. “We’re speaking on behalf of bakers, but we’re working with others who are experiencing the same kind of supply chain disruption struggles.”

Ms. Sanders emphasized, “We’re not against the RFS. We’re all for the program. With regard to sustainable initiatives, the baking industry is the largest manufacturing sector participant in the EPA’s Energy Star Program. But in this case, the timing for an increase in the RVOs is not good.”

Regulators have been listening, but things are coming to a head as the EPA moves forward, Ms. Sanders said. Once the EPA’s RFS proposal is out, ABA and other edible oil stakeholders will have another opportunity to voice their concerns.

“Hopefully, that will make a difference as the final levels are set,” Ms. Sanders said.

Ms. Sanders also pointed to concerns surrounding the importation of soybean oil, should that become a more important part of US supply in view of the competition for domestically produced vegetable oils.

“We don’t want to get ourselves into a food security issue with additional hurdles for the supply chain,” she said.

She noted there is a 19.1% tariff attached to soybean oil. And if an increase in imports proves necessary, food manufacturers additionally would confront bottlenecks at the ports that could frustrate plans to get imported oil in time to use it.

“US soybean farmers are doing a great job,” Ms. Sanders said. “They’re growing as much as they can. We want them to, and we want to source soybean oil domestically, but I think there’s just more demand. And I think that demand is going to continue to grow. We have to think about solutions. We have to think about what is needed so our members and others produce their products and keep people employed, keep their doors open.”

Mr. Harris acknowledged the difficulties facing bakers and other food manufacturers in soybean oil price and availability.

At the same time, Mr. Harris said there should be some normalization beginning after the first quarter of 2022.

Asked what normalization might entail, Mr. Harris explained, “A more balanced supply/demand picture and less volatility, albeit at higher levels than pre-2020, as crushers have moved margins up due to the new renewable diesel demand segment. Keep in mind that a good chunk of the stand-alone methyl ester capacity has been cannibalized by renewable diesel.”

Mr. Harris said given the inevitable competition food manufacturers will face in sourcing soybean oil, it was extremely important they plan well forward in the purchasing programs.



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