Singapore (Platts)--20Jun2008

Crude oil prices could move even higher if biofuel subsidies were to be
scrapped, biofuel proponents told Platts this week in response to recent
criticism that biofuels is responsible for around one-third of recent food
price increases.

The biofuel going into diesel blending would have to be replaced by
conventional fossil fuel, pushing oil prices even higher, Henri Bardon,
Singapore-based managing director of Vertical Asia, said. Vertical is 50%
owned by COSAN group, an ethanol and sugar producer in Brazil.

The OECD forecasts that food prices, in particular the cost of cereals,
will remain high and that development of biofuels is responsible for about a
third of recent rises. The European Union is by far the largest consumer of
biodiesel, accounting for over two-thirds of the total world's consumption.

Bardon noted that the correlation of food price hikes is more closely
tied to that of crude oil than biofuels.

"If crude falls below $100/barrel, you would see a similar decrease in
the price of most commodities," he said.

The biofuels industry is looking at all alternative feedstock options as
the use of food products is neither economically nor socially prudent in the
long run, Mike Thorley, chief operating officer of Malaysia-based SPC
Biodiesel noted. SPC Biodiesel is a unit of Australian Stock Exchange
listed-Sterling Biofuels Group.

"Obviously this is just another platform for the food versus fuel debate,
one of which we are very aware and naturally very sympathetic. However, there
is a need to look at some facts and more importantly consider the
alternatives," Thorley said.

"If we convert all vegetable oils into biodiesel this would represent
about 3% of the world's annual fuel requirements. The biofuels industry, in
its current state is really supplying an 'additive,' but one that can deliver
cleaner fuel consumption and thereby prove beneficial to the greenhouse gas
impact we are currently facing," he added.

The use of farmland for biofuels has become a controversial topic stoked
by rising food prices. The issue was debated recently by the United Nations
food summit in Rome.

An OECD agriculture official had urged that biofuel subsidies be
scrapped, saying this was the quickest way to fight rising food prices,
according to a media report.

Peter Brabeck-Letmathe, chairman of Swiss-based multi-national food
company Nestle, had also said at the recent World Economic Forum on East Asia
that a third of the food price increases is due to governments promoting
increased biofuel production.

But the European Commission supports expanding biofuel agriculture and
wants to see 10% of all transport to be powered by such fuels by 2020, it
said. That goal is "imperative," Klaus-Dieter Borchardt, an EU agriculture
official, was quoted as saying in the report and warning against making
biofuels "the whipping boy" of soaring food prices.

Borchardt pointed out that "the first generation of biofuels is in a
necessary transition phase" and crops would eventually be replaced by waste
products and wood as sources of energy, the report said.

EU leaders were meeting in Brussels Thursday and Friday to discuss
possible measures to tackle soaring food and oil prices.
--Weilyn Loo, weilyn_loo@platts.com