Voluntary Report - public distribution

**Date:** 1/20/2006

**GAIN Report Number:** FR6005

FR6005

**France**

**Oilseeds and Products**

**French Biofuel Production Booms**

**2005**

**Approved by:**

![](media/image1.wmf)Elizabeth B. Berry

U.S. Embassy

**Prepared by:**

Marie-Cécile Hénard

**Report Highlights:**

France has adopted more ambitious objectives than the European
Commission\'s for biofuel incorporation into conventional fuels. As
such, they have offered biofuel producers financial incentives for
production of 517,500 MT in 2005 up to 3.2 million MT in 2008. French
rapeseed production is expected to increase substantially and by-product
rape meal will partially replace imported soybean meal in feed rations.
France may need to diversify some sources of biofuel products due to
production constraints, which may lead to export opportunities for
low-cost producers of suitable oilseeds and products.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Paris \[FR1\]

\[FR\]

Table of Contents

[GOF Policy on Biofuels 3](#gof-policy-on-biofuels)

[Current French Biofuel Production and Consumption
3](#current-french-biofuel-production-and-consumption)

[Recent Changes in French Biofuel Production Policy
4](#recent-changes-in-french-biofuel-production-policy)

[Biofuel Taxes 4](#biofuel-taxes)

[Impact of Growing Biodiesel Production
5](#impact-of-growing-biodiesel-production)

[Oilseed Production, Alternative Supplies and Animal Feed
5](#oilseed-production-alternative-supplies-and-animal-feed)

[Impact on Animal Feed Production 5](#impact-on-animal-feed-production)

[Industrial Developments Projects 6](#industrial-developments-projects)

# GOF Policy on Biofuels

The Government of France (GOF) has offered financial incentives for
biofuel production since 1993 following implementation of the first
reformed Common Agricultural Policy. Each year, the Government announces
a quota for biofuels that will qualify for a reduced domestic tax. For
2005, the GOF established a 517,500 MT (417,000 for biodiesel, 100,000
for bioethanol) quota for tax relief, however, total tax relief claims,
including bioethanol, ETBE and VOME, only reached 504,000 MT (up from
467,500 MT in 2004).

# 

## Current French Biofuel Production and Consumption

France currently produces and consumes the following biofuels:

-   [Biodiesel:]{.underline} Vegetable Oil Methyl Ester (VOME) is
    derived from rape oil and sunflowerseed oil. VOME is mixed with
    diesel at the rate of 5 percent for general use and 30 percent in
    captive fleets for public transportation.

-   [Bioethanol]{.underline}: ethanol is derived from sugarbeets or
    wheat, and Ethyl Tertio Butyl Ester (ETBE) is derived from ethanol.
    Ethanol and ETBE are incorporated into gasoline at a maximum rate of
    15 percent.

The inputs and processes used to produce biofuels in France are the
following:

## Recent Changes in French Biofuel Production Policy

The French Government recently announced that, in order to reach the EU
Commission (EC) objectives of biofuel incorporation into conventional
fuels set in the directive 2003/30/CE, France would increase the quota
for tax relief to 880,000 MT by 2007 (see FR5002 and FR5018) and
accelerate biodiesel incorporation into total fuel consumption from the
current 5.0 percent to 5.75 percent by 2008 (two years earlier than
required), 7 percent by 2010, and 10 percent by 2015.

  ---------------------------- ------------ ------------ --------- -----------
  GOF quotas for biofuels      Vegetable    Ethanol and            Total (MT)
                               Oil Methyl   Ethyl Tertio           
                               Ester (VOME) Butyl Ether            
                               used as      (ETBE) used            
                               biodiesel    as                     
                               (MT)         bioethanol             
                                            (MT)                   

  2005 approved quota          417,500      100,000                517,500

  Additional quota announced   560,000      320,000                880,000
  in September 2004                                                

  Additional quota announced   1,335,000    465,000                1,800,000
  in September 2005                                                

                                            380,000      85,000    
                                            ethanol      ETBE      

  Total projected in 2008      2,312,500    885,000                3,197,500
  ---------------------------- ------------ ------------ --------- -----------

These volumes were based on projected French consumption of 35 million
MT of diesel and 10 million MT gasoline in 2008.

The French government, through its support of biofuel production is also
providing financial support to oilseed producers. The government
measures stimulate expanding demand for oilseed products. For example,
French farmers are allowed to incorporate their own rape oil into their
on-farm fuel for the first time in 2006. The Government is wary,
however, that farmers' use of vegetable oil may represent a major
revenue loss from reduced taxes. Further, the environmental impacts of
this use are unknown.

Non-agricultural French industries, including refiners and automobile
manufacturers, are finding their use of biofuels in light of high oil
prices. The French oil company TotalFinaElf uses significant amounts of
domestic biofuels as a component in its refineries, and the French car
industry can mix biofuel into conventional fuel at low rates because it
doesn't require technical changes in traditional engines. Ford Motor
Company is planning to sell cars in the French market that can run on a
mix of 85% ethanol.

## Biofuel Taxes

In 2005, biodiesel and bioethanol fuels were taxed, relative to diesel
and gasoline, as follows:

+--------------+---------------+-------------------+-------------------+
| Product      | 2005 Tax      | 2005 Tax Cut      | 2005 Final Tax    |
|              |               |                   |                   |
|              | (in euros per | (in euros per     | (in euros per     |
|              | hectoliter)   | hectoliter)       | hectoliter)       |
+--------------+---------------+-------------------+-------------------+
| Diesel       | 41.69         |                   | 41.69             |
+--------------+---------------+-------------------+-------------------+
| VOME         | 41.69         | 33                | 8.69              |
| (Biodiesel)  |               |                   |                   |
+--------------+---------------+-------------------+-------------------+
| Gasoline     | 58.92         |                   | 58.92             |
| (unleaded)   |               |                   |                   |
+--------------+---------------+-------------------+-------------------+
| Bioethanol   | 58.92         | 37                | 21.92             |
+--------------+---------------+-------------------+-------------------+
| ETBE (used   | 58.92         | 38                | 20.92             |
| as           |               |                   |                   |
| bioethanol)  |               |                   |                   |
+--------------+---------------+-------------------+-------------------+

Because the public cost of supporting biofuel production results in
lower tax gains for the GOF budget, the 2006 financial bill increased
the tax rate to 33 from 25 euros/hl for biodiesel and to 37 and 38 from
33 euros/hl for bioethanol and ETBE for 2006.

# Impact of Growing Biodiesel Production

This report will now focus specifically on biodiesel, which is the
biofuel with the strongest development prospects in France and Europe,
and the most relevant market opportunities for U.S. exports.

## Oilseed Production, Alternative Supplies and Animal Feed 

Realistically, France cannot produce the amount of rapeseed necessary to
process the quantities of biodiesel to fill the 2008 quota, especially
as the food industry also needs rape oil (which is easier to source
non-GM than soy). 2.3 million MT of rapeseed methyl ester projected for
biodiesel production in 2008 would require 1.6 to 1.9 million ha of
planted rapeseed, depending on the yield. According to the French
technical institute for oilseed (CETIOM), France's maximum acreage for
rapeseed, based on agronomic constraints, is 1.5 to 1.8 million
hectares. In 2005, French rapeseed acreage was 1.2 million ha, including
450,000 ha for industrial rapeseed.

Thus, to reach its biofuel objectives in the next few years, France will
have to import rapeseed, rape oil or other oil sources to process VOME
and/or incorporate other vegetable oils, such as soybean, into biodiesel
production. Sunflower oil methyl ester can be used as biodiesel,
provided that seeds are from oleic varieties. Oleic sunflower production
in France has increased significantly in the past few years (from 12
percent in 2003 to 35 percent projected in 2006), indicating increased
interest by the French industry in oleic sunflowerseed varieties.
France's need for alternative sources to rapeseed may present a market
opportunity for U.S. products. However, if raw materials necessary to
process biodiesel are imported from outside of the European Union, the
preferential tax system benefiting biofuels may be revised.

The GOF's recent measures, as well as the EU Commission proposal to
amend the standards for biodiesel to allow for incorporation of a wider
range of vegetable oils could result in a potential market for U.S. soy
oil (see E35235). For conditions for importing biodiesel to the EU from
the U.S., please see E35101.

In addition, and as a way to prevent imports from increasing
significantly, the GOF is also cautiously exploring other sources for
biodiesel than VOME or crude vegetable oil, i.e., Animal Oil Methyl
Ester (AOME) and Vegetable Oil Ethyl Ester (VOEE).

## Impact on Animal Feed Production

As a natural consequence of increased rapeseed production, French
supplies of rape meal will increase significantly as well. As was the
case in 2004/05 (see E35118), rapeseed meal is expected to further
replace soy meal in feed rations, especially for dairy cattle (see
FR5046).

# Industrial Developments Projects

Assuming continuing high oil prices and reliable supply chains for
biofuel inputs, French companies are expected to respond to the
Government's incentives by expanding current plant capacity and building
new plants for biodiesel production. As shown below, production is
projected to climb from about 400,000 MT in 2004, principally in the
Grand-Couronne plant, to more than three times that amount in 2008 (1.4
million MT).

![](media/image2.wmf)

Diester Industrie, a large farmer-owned biodiesel company, for example,
is planning to double the Compiegne and Grand-Couronne production
capacity and to build 3 new plants in Sete, Saint-Nazaire (Façade
Atlantique) and Le Meriot by 2008.

  --------------------- ---------------- ---------------- ----------------
  Location              2004 (MT)        2005-2006 (MT)   2007-2008 (MT)

  --------------------- ---------------- ---------------- ----------------

  --------------------- ---------------- ---------------- ----------------
  Grand-Couronne        260              260              500

  Compiegne             83.5             100              200

  Boussens              33               33               33

  Sete                  0                160              200

  Saint --Nazaire       0                0                250
  (Façade Atlantique)                                     

  Le Meriot             0                0                250

  Total                 376.5            553              1,433
  --------------------- ---------------- ---------------- ----------------

Other projects are expected to be announced in the future.

The following map, available on the
[http://www.prolea.com](http://www.prolea.com/) website, indicates the
locations of the Diester Industries biodiesel plants.

![](media/image3.png){width="4.885416666666667in"
height="5.822916666666667in"}

The new plant at Le Meriot is expected to cost as much as 95 million
euros, including 70 million euros for a rapeseed crushing and refining
facility, and 25 million euros for an esterification plant (to process
methyl ester from rape oil). The French oilseed industry chose this
location due to its proximity to three major rapeseed producing regions
(Eastern France, Burgundy and the Parisian Basin) and its location on
the Seine River.

According to the industry, the new plant in Saint-Nazaire / Facade
Atlantique (refinery, esterification and storage facilities) will cost
35 million euros and be operational in early 2007. This plant will be
supplied with rape oil and sunflower oil by a Cargill crushing plant,
which is already based in the same region.