Oil crisis looms as firms blame green fuels for inflating prices

Moves to increase the use of biofuels in road transport are driving the price of edible oils to record levels and putting further pressure on food firms' margins, claimed the Margarine and Spreads Association (MSA).

A European Commission (EC) move to increase the proportion of biofuel used in road transport from 0.8% to 5.75% by 2010 has pushed up the price of some key commodities, such as rapeseed oil and palm oil, by almost half, according to leading manufacturers. The MSA acknowledged that oil prices had fallen slightly recently but said that it was unclear whether that was just a blip.

Ironically, a move to greener fuels was also damaging the environment, according to environmentalists. They said that rainforests in South America and South-east Asia were now being razed to grow palm oil, sugar cane and soybeans to meet biodiesel demand in Europe and the US.

"If prices continue to rise," said the MSA, "either retail prices will be forced to rise or manufacturers will have to re-formulate using oils that do not have the same health profile as rapeseed."

It added: "Just based on the EU target of 5.75% biofuel by 2010, studies have shown that an extra 2.25Mt/year growth in EU 25 biodiesel production would be required and that almost double the current amount of set-aside land would be required."

The UK's Food and Drink Federation said that the industry should have been consulted at an earlier stage to assess the impact of any EC biofuel targets. "Policies to increase the use of biofuel could have negative consequences for the food industry," it said. "Regulatory impact assessments should have identified these issues before they came up."

Dairy Crest's supply chain manager Phil Jennett said: "We've seen rapeseed prices go up 20-25% in the last few months, which, coupled with rising plastics prices [for margarine tubs] and rising energy prices, has really put the pressure on."

Patak's manufacturing manager Greg Harrison said: "Demand for biodiesel has really driven up the price of vegetable oil, which we use for several things, including frying pappadums. The trouble is, these things are completely beyond your control."

Greencore added: "This is beginning to become quite a big issue for the industry." Unilever, meanwhile, has called for more research into second-generation biofuels, such as straw and wood pulp, to take the pressure off the food industry.