The European Commission, the entity responsible for negotiating trade deals on behalf of the European Union, announced last week that they will now allow soybeans grown in the United States to be used for biofuel in the EU. This move came as part of a campaign to improve trade relations with the United States. The European Commission’s statement stipulates that the allowance of U.S. soybeans for use in biofuels will be valid until July 1, 2021, with a possible extension if the deal meets the sustainability criteria set by the EU in the future (2021-2030).
This is not the first that the step the EU and U.S. have taken to boost trade in the last year. In July, the Trump administration agreed not to place a tariff on European Union car imports. At that time, the two economic powers were already discussing the issue of soybeans as part of a potential no-tariff deal that also included non-auto industrial goods and liquified natural gas (LNG).
Despite this month’s change in policy for soybeans, experts say that European markets don’t need to be worried about a flood of new soybean imports. The United States has already been exporting 14 million tonnes of soybeans each year to the European Union, to be used strictly for animal feed. As such, all soybean oil byproduct had to be shipped back to the United States. Now, under the new regulations that oil can be used for biofuel instead. “So, on its face, it does nothing to increase soybean exports in the EU,” a lobbyist for the U.S. biodiesel industry told Reuters. “It just helps European farmers capture the full value and saves U.S. farmers shipping costs.”
Currently, biofuel producers in the EU use relatively very little soybean oil in their biofuel production. In 2018, they used an estimated 400,000 tonnes of soybean oil, a drop in the biofuel bucket compared to the 5.9 million tons of rapeseed oil they used in the same year, according to numbers provided by Claus Keller of German commodity analysts FO Licht. Keller said that he believes that the European Commission’s decision will boost U.S. soybean imports, but not drastically, pointing to trade relations between the U.S. and China and the future of Argentina’s biofuel industry, whose product is taxed in the United States and soon could be in Europe, as variables.
There has already been a major uptick in soybean imports however, just in the last year. Since July, there has been a whopping 112 percent rise in U.S. soybean imports to the EU. The United States is by far the bloc’s biggest purveyor of soy, providing 75 percent of the European Union’s total soybean imports. Part of the reason for this major increase is the diminishing price of U.S. soybeans, which took a major hit from China imposing tariffs on U.S. soy during its 2018 “trade war” with the Trump administration.
Despite the conservative estimates for further increase of imports, this could just be the beginning for the rise of U.S. soybeans in the EU. With the European Union pushing away from palm oil, which is linked with heavy deforestation and other environmentally endangering practices, soybeans could step up to take its place. This would be a major blow for Indonesia or Malaysia, who currently supply the EU with large amounts of palm oil, but are plagued with controversy over the clearance of tropical forests to make room for the crop. In fact, Indonesia has already pledgedto fight back against what it deems a “discriminative” directive from the EU to cut down on its palm oil imports.
The EU’s step back from palm oil comes at the same time that the 28-nation bloc is working toward a new rule which stipulates that 14 percent of transportation fuel consumed in the EU needs to be from renewable sources by 2030. This means that the EU will need to replace the palm oil they currently rely on in a hurry, and then some. U.S. soybeans, now that they are eligible sources of biofuel in the EU, could be in the perfect place at the perfect time