Thank you very much, Mr. Chairman, and thank you to the committee for giving us the opportunity to present to you today for an introductory discussion on a biofuel strategy. As I'm sure all of you know, this is an issue that is clearly close to the hearts and minds of many in the agricultural community. I'd say it's pretty difficult these days to go to an agricultural discussion and not hear words such as “renewable fuels”, “biofuels”, “biodiesel”, “ethanol”, one of those terms, in the discussion about how we can build on agriculture in the future.
What I'd like to do is take a step back and talk about the global context for biodiesel and what sort of impact that's going to have on canola. The reason why I'm talking about canola is it will be the major feedstock of choice for biodiesel in Canada. There are other feedstocks that can be used for this, such as rendered product from tallow and lard, and other sources, such as soybean oil or yellow grease from restaurants, those sorts of things, but the supply of those is limited in comparison to the supply of canola. So I think there will be a variety of sources that will be used for this feedstock at the end of the day.
As most of you know, the canola industry has just come off a very large production year. Unfortunately, that coincides with very low prices for canola. There are a variety of factors that have an impact on the net returns for the industry as a whole and notably the growers. What our organization and our industry try to do is have an effect on those factors that we have some control over. We often talk to elected officials about the importance of international trade to increase demand for canola products, but biodiesel, similarly, offers an opportunity to boost demand for our product.
Globally, over the last two years, we've seen some major capital commitments across the globe. The world's governments are responding to a variety of public policy objectives, whether they be environmental protection, energy security, or rural development, and this is going to have an impact on the overall vegetable oil complex, whether it's soybeans as a result of what the U.S. and South America do, or whether it's palm oil as a result of what's going on in Asia, and, quite frankly, what's happening to canola because of the EU in particular.
So this is going to have a positive impact on prices for oilseeds. We're already starting to see some of that in prices today, and you can see some of the excitement in places like the Chicago Board of Trade, where they're looking at indexes for biofuels, just to give you an example of the kind of excitement that's around there on prices.
So as the production comes on stream over the next 18 to 24 months, we'll see a rise in prices, and, quite frankly, the demand from biodiesel for oilseeds is something that is going to occur, or is occurring, overnight and is the likes of something we would never be able to see in the food market we have right now.
Now I'd like to turn to the global demand for canola in biodiesel. Most of the time, oilseed markets are driven by meal, so you're seeing a situation where soybean is the preferred oilseed to crush because it's 78% meal and the remainder comes in as oil. But in a biodiesel market, it turns that market into an oil-driven market, and it just so happens that canola, our little black seed, is 42% oil. So it's very competitively situated for an oil-driven market.
The other consideration is that there will be strong demand for canola as a feedstock to biodiesel in colder climates because it is the lowest in saturated fat of all available commercial oils. The same thing that doesn't clog your heart doesn't clog your engine. So there is going to be strong demand for canola worldwide.
Now I'd like to turn briefly to the context for canola in Canada in biodiesel. Obviously Canada fits the bill as a cold climate, so we're going to have strong demand for canola as a feedstock in biodiesel in Canada. What the renewable fuel standard of 5% means for biodiesel--if we translated that in the current diesel fuel pool, it would be about 1.3 billion litres of biodiesel in Canada. We think that given the supply of all the available feedstocks, canola would be at a minimum 60% to 70% of the feedstock used for this particular fuel.
Without a domestic production, obviously we're going to have to import that fuel. So the renewable fuel standard alone, while it's a good start, only addresses the demand side, and that demand can be met by imported product.
The final element, of which I would just like to make brief mention, is that canola will also gain some food market share as a result of biodiesel. You're seeing already in the United States a lot of soybean oil going into biodiesel. We think Canadian canola can have a share in backfilling some of that high-value food market as well.
So there are a number of angles as to why biodiesel is good for Canadian canola.
What do we need to actually build this out in Canada? Like Mr. To, I'd like to take two seconds to talk about the situation in the U.S.
They have substantial production incentives in place right now. They've invested in the industry, and canola, even Canadian canola, is feeling the impact right now. We've heard three major announcements made on the border just to the south of our Canadian provinces: one in North Dakota, one in Minnesota, and one in Washington state. They are all canola-based feedstock biodiesel plants, and the majority of their feedstock is coming from Canadian product.
Obviously, if the plant is located in the United States, Canadians aren't taking advantage of that value-added production, and in particular, Canadian growers aren't taking advantage of that value-added production.
We believe that in order to build out biodiesel production in Canada we require four policy responses. The first is the renewable fuel standard. We have to have the demand draw, as we already indicated.
For biodiesel, we'd like to see a floor in order to ensure that there is demand for biodiesel specifically. We're thinking that 2% by 2010 for biodiesel would be required, out of the overall 5% for renewable fuels. That leaves the flexibility for the petroleum industry and the blenders, but at the same time ensures that biodiesel is built out in Canada.
The other part is to address the supply, the actual domestic production. What we need roughly—and this is just in general terms—is parity with the U.S. government investment in biodiesel production. If we don't match or come close to what's on offer south of the border, we will continue to see, 20 to 50 miles from the border, large-scale capital investments made in value-added production that isn't situated in Canada. That's a massive missed opportunity for our industry to build on in the future.
The third criterion is quality standards or criteria for biodiesel. We have to have end-user acceptance; it's critical. We have to ensure that our product is reliable and that it can be easily brought into the Canadian fuel stream. It has to be performance-based and science-based to inspire confidence among end-users.
And finally, and the one I'm sure you're all interested in, we have to encourage grower participation in the value-added processing. It's an incredible opportunity for producers to get up the value chain, and we have to make sure we have the right measures in place to successfully build out the industry.
That's where I'm going to leave it for the moment. I look forward to the questions. Thank you very much for listening.