Examination of Witnesses (Questions 20-39)
MR PETER
KENDALL, MR
MATT WARE
AND MR
DAVID PROUDLEY
1 MARCH 2006
Q20 Lynne Jones: You are talking
about 85% bioethanol powered vehicles. That might be feasible,
but it is impossible for this country to produce. We are only
able to produce about 5% from indigenous resources without handing
over a vast hectarage of the land. What is the point of going
to 85%? Surely, rather than having a small proportion of vehicles
having 85% bioethanol, is it not better to make sure we achieve
the 5% target throughout the country?
Mr Kendall: The point of E85 is
that with an obligation it is not mandatory that every litre sold
has 5% biofuel in it. There might be certain markets that are
still left with 100% conventional fuel. You could have areas like
London and Somerset where there is a concentration of E85 cars
where you have a lot more being delivered through E85 engines.
What we have not picked up enough on here is that this is the
start, this is what we call first generation bioethanol and biofuel
production, and there is a lot of work going on using enzymes
in Denmark and Iogen in Canada where they are looking at cellulosic
ethanol production. If I can take my wheat, use my wheat in a
first generation production facility producing ethanol from my
wheat, I would also use the straw and extract the ethanol from
the cellulose, and then you make it much more efficient and you
increase your output significantly. There is work going on in
relation to cellulosic ethanol production from woodchips as well,
so this would increase our whole capacity to produce from other
resources.
Q21 Lynne Jones: Can you have an
engine that can work on 5% bioethanol or 0% and 85%? I travel
between London and Birmingham, and so I want to be able to fill
up at different petrol stations. Is it feasible to have a fuel
that has that vast range of the proportion of contents, bioethanol
as opposed to the conventional mineral oil?
Mr Ware: There are two distinct
types of fuel here. There is the 5% blended bioethanol or biodiesel
and conventional petrol. It is only limited to 5% because that
is the European quality level. For the RTFO it would have to go
up to 10%, but at the moment it is 5%, and that can go in all
conventional cars, but you have to remember that there is a huge
conventional car fleet out there of 32 million vehicles in the
UK. It can go into all those vehicles. In addition, the new generation
of flexible vehicles can use 85% ethanol or normal petrol. If
you were in London and you filled up with 85% bioethanol and then
you went on holiday to Scotland, you could put normal petrol in
the car in Scotland and then when you come back you can put in
E85.
Q22 Lynne Jones: You would have to
have newish car for that?
Mr Ware: You would have to have
a new car, but the great news on that front is that Saab, Ford
and Volvo are all producing cars at exactly the same forecourt
price, a completely flexi-fuel vehicle, and that is why we are
seeing massive increases in sales in Brazil and Sweden. We have
got two distinct areas. We have got blending at 5% of all cars
and then these new flexi-fuel vehicles, which we would like to
promote through Government procurement.
Q23 David Lepper: You talked about
the role of local authorities and the things that are happening
in Sweden, and so on. Are there any signs, so far as you are aware,
of local authorities in this country taking that seriously?
Mr Ware: There is a pioneering
project, as we have already mentioned, in Somerset which is great,
and that is rolling out. They have got 55 Ford Flex vehicles actually
ordered, which is great because it is not hypothetical, it is
actually happening, and they have got five pumps strategically
located around the county. On the back of that we have got interest
from Gloucestershire, Hampshire, Oxfordshire and Kent, and so
we would be very keen to spread the good example around the country,
but the great thing about getting local government involved is
that they do have depots where they have fuel tanks and they have
large fleets of vehicles which can make it more economical rather
than individual farmers or forecourts trying to do it on their
own.
Q24 David Lepper: What I was actually
scheduled to ask you about was the energy crop scheme, but thank
you for that information. You have talked about and you have shown
enthusiasm for production, you have also talked about the lack
of certainty. On the figures that I have got for 2004—there
may be more recent figures—the take-up in terms of the energy
crop scheme (and I understand that is 45 euros per hectare of
non set-aside land for energy crops) does not seem to be very
high. It was 300,000 hectares in 2004. I do not know whether there
are more recent figures that show an increase or whether it is
about the same. Why do you think that is? Is there anything that
can be done by the Government to improve?
Mr Ware: It has been a very disappointing
uptake, but when you do the figures in old money it works out
at £12 an acre, which basically is not a lot of money. There
has also been a risk that the European ceiling of 1.5 million
hectares is exceeded pro rata, so there is a level of uncertainty
in there, and probably, most fundamentally, we have found that
there have been administration costs put in by a lot of merchants
that service the contract for the energy crop aid which has further
eaten into the £12 an acre. Because of the very disappointing
figures, the European Biofuels Strategy announced last week in
London is going to review the Energy Aid Scheme levels, and they
were hinting that there may be an opportunity to increase the
value in the future. Any indication or suggestion you can make
to the EU Biofuels Strategy encouraging them to do that would
be very welcome.
Mr Kendall: If I could come in
on that. You are all aware, obviously, of some of the problems
we had in getting the single payment scheme payments out this
year.
Q25 Lynne Jones: Have you got yours
yet?
Mr Kendall: I have not had anything
yet. When my colleagues in Wales will receive their money, it
is a bit of a moot point at the moment.
Chairman: You can have a pint on them
then.
Q26 Mrs Moon: We do things more efficiently
in Wales.
Mr Kendall: Particularly after
the rugby, I will not comment on the Welsh!
Q27 David Lepper: Do you know anyone
who has got one yet?
Mr Kendall: I have seen one cheque
in a photocopy form. Someone received one down in Devon.
Q28 David Lepper: It is being passed
around?
Mr Kendall: It is, yes, it is
being looked at with amazement. This energy scheme payment complicates
your application for an ECS under the old scheme; and certainly
this year I took the decision on my farm not to apply for any
energy supplement payment because it complicated things—I
thought it might have held it up, but I did not realise it might
hold it up to the end of June—so I stayed with a simple
system on my farm and lots of farmers did in the year we have
just experienced. Before that there was also a lot of oilseed
rape, which is a main crop. In 2004-05 a lot of the winter oilseed
rape failed because of the incredibly dry autumn. That was why
the year you refer to was very low. This year we have got the
Single Payment Scheme sorted out. I think this year the uptake
will be much higher. I have certainly registered all the oilseed
rape on my farm, which is not on set-aside land, for energy crop
supplement.
Q29 Chairman: Hang on a minute. You
said to us earlier on that you were quite happy, whatever the
use for the arable crops—they could go to energy or they
could go to food—and you did that because the economics
for your farm were right and you did not want to mess the system
up. Now you are telling us you definitely want £12 an acre.
Why should anybody give you £12 an acre for doing this? If
you are telling us that the Chancellor, who might be stuck for
a bob or two, ought to be sustaining the 20 pence a litre duty
derogation and ought to be handing out the nation's millions in
capital allowances and you need all that to give certainty and
encouragement, why are you then going to pinch money to go into
this pot?
Mr Kendall: First, half of it
disappears to the merchant who has to put up a complicated bond
to the EU to make sure it can get the money back. Second, I am
then tied to the merchant I can sell it to and when I can sell
it, so putting my oilseed rape in an energy crop scheme reduces
my business flexibility a lot. Bearing in mind, on an oilseed
rape crop, I might in a good year average 1.4 tonnes to the acre,
with a little bit of fluctuation on when I can sell it or I can
move it. If I am not careful, I get the sums wrong and am not
able to market it for the best opportunities. This year I have
taken a view that I want my money in that certain period. The
rape price I thought was reasonable, and so I have locked into
it, but there are reasons why you would not as a businessman,
as a farmer, automatically lock into that price at that time.
The incentive, once you have lost half of £12 in bureaucracy
and handling, is not that much of an inducement.
Q30 Chairman: So why do we need it?
Mr Kendall: The idea is to encourage
and stimulate energy production. The sad situation in the UK is
that it is just a paper exercise. All we are doing is buying the
rape. It actually depresses my market: because I grow rape in
the UK that is meant to be for energy production, it stays internally
and overhangs the market, whereas in Germany, where by counter
transaction the opposite bit of paper turns up, they draw that
rape off the market. The rape price in Germany, because of the
demand for energy and fuel, is usually about £10 or £12
a tonne and getting higher than mine would be here. There are
some real anomalies that go on because we have not got domestic
production. I am very keen for the whole RTFO initiative, but
we really need someone to sit behind the investors who are prepared
to build the plants and have the demand in turn.
Q31 David Lepper: You mentioned the
discussions last week, I think you said?
Mr Kendall: Yes.
Q32 David Lepper: Was that solely
about the figure or was it about the mechanics of the operation
of the scheme you are talking about?
Mr Ware: The European Biofuels
Directive in 2003 set the target for last year and the 5.75% target
for 2010 and it always decided to have a review in 2006 to see
how they were getting on, and, as part of that review, they announced
seven areas of discussion under the EU Biofuel Strategy last week.
The energy crop aid is just one of those seven areas.
Q33 Lynne Jones: I am intrigued on
this point. Would it not be better to make sure that if there
is support needed for the investment in the plant that needs to
produce the bioethanol or the biodiesel, where perhaps the support
needs to go, why do you need to declare in advance that such and
such a proportion of your crop is going to go for biodiesel? Would
it not be better to make sure that you create the demand and then
you could decide where you actually market your crop?
Mr Kendall: I think I tried to
make the point earlier on, I have always been much keener on demand
pull than trying to stimulate supply. This is a European scheme.
The Europeans are much keener on saying that farming needs extra
support to grow these crops and therefore put it in place. That
is why as an organisation we have moved to supporting the Renewable
Transport Obligation as a key point. Twelve pounds is not a big
sum of money. The amount of money that ends up with me is quite
small. The most important thing for me as a farmer is to see the
internal demand and internal capacity built within the UK, and
that is what I am keen to start with.
Q34 Mr Vara: I would like to turn
your attention to the carbon assurance schemes and the importance
of a carbon certification scheme to ensure that energy crops are
grown sustainably, safeguarding biodiversity and the wider environment.
In order for such an assurance scheme to be successful, the NFU
believes that it must include a "banding system to reward
the most efficiently produced biofuels".[7]
How do you envisage that this might work and how do you think
it might be regulated?
Mr Ware: Under the Renewable Transport
Fuel Obligation there is an opportunity for recycling of funds
and those funds are the buy-out price, or the penalty price that
we talked about earlier, and it will go into a central pot or
pool. Under the Energy Bill amendments it states that that money
should be recycled back into the industry, but it does not go
into any detail. There is an opportunity there for those monies
to be put into supporting or encouraging the most efficient forms
of bioenergy production in the UK, so there could be grant availability
for cleanest fuel production standards, and so on, but it is an
area that under the Renewable Fuel Transport Obligation has not
been investigated or discussed in any great detail and we think
it is a great opportunity to encourage the greenest fuel production
possible.
Q35 Mr Vara: Of course there is the
difficulty that farmers are always complaining that there is a
lot of bureaucracy in the entire system. To what extent is this
going to create more bureaucracy and what sort of response and
support have you had from the farming community generally?
Mr Kendall: Speaking as a farmer,
we have Farm Assurance now on farms where we are inspected on
a yearly basis, which looks at how I produce my crops, makes sure
I look after my water courses, how I treat my fertiliser storage
and my crop management records. We think that is one visit already
we would not want to duplicate. That would demonstrate that I
am growing in an environmentally responsible way. Where we then
would want to move is attaching it to, for example, something
where I record my total amount of fertiliser used in relation
to the anticipated yield. We would then like to relate to something
along the generic line, and this is something that is being talked
about at the moment in the industry as a whole, that rather than
have a detailed analysis for my individual farm, if, for example,
you are growing wheat in the United Kingdom, three and a half
tonnes of wheat would give you, say, 65, 70% CO2 savings, and
have a generic system that did not add to detail in depth around
the quality of individual farms. We would have the farm assurance
with some sort of record of the amount of fertiliser used as a
key input and then we would use a generic acceptance of it.
Q36 Mr Vara: Turning to the international
scheme, the NFU has argued that a scheme "must be applicable
throughout Europe and compare with world imports".[8]
English Nature, on the other hand, although supporting the scheme,
has raised concerns that it might conflict with the World Trade
Organisation rules. How does the NFU feel the international scheme
can be dealt with, bearing in mind you have got this conflict?
Do you want to expand on the one hand and tell us if you have
any reservations as well?
Mr Ware: The Department for Transport
and the Government at the moment have been looking into this in
great depth, and their legal advisers say that on carbon saving
grounds there is not a problem in looking at environmental accreditation.
However, there is more of a problem under the WTO when we start
to invest in sustainability production. That is why we are very
interested in the work done by Imperial College and others looking
at carbon saving or a biocycle analysis of the whole crop. In
the UK, through assurance and the work of the Central Science
Laboratory, we know what our carbon savings are—at least
60% in our conventional crops—and the challenge we would
like to put out to importers is, "Tell us what your carbon
saving is." What we are very concerned about is that there
would be over complication and over accreditation of UK produced
crops, just simply because it is easy to do, and almost a disregard
or lack of interest in the imported products because it is too
complicated. For example, one scenario I would like to give, bioethanol
coming from Brazil on a ship, there is a relatively low carbon
amount used in the freight, a tanker it is quite efficient. There
is a huge difference between the bioethanol from Brazil whether
it is produced on the coast or whether it is produced a thousand
kilometres inland, because it has to get to the coast first.
Q37 Mr Vara: Is this message getting
through? Are you actively making sure that people are discussing
this and getting involved, getting the message across. Are they
being responsive to your thoughts?
Mr Ware: We are battling away.
As I am sure you will appreciate, there are an awful lot of environmental
groups out there, and there is only one NFU. We feel that we are
sometimes a lone voice on this. We would hate to see our proven
carbon saving crop production perhaps being exported to third
countries where we do not know about their assurance and accreditation.
One criticism of biofuel production that used to be given was
that we would create monocultures of oilseed rape, or whatever,
across the UK. The fact that all the feed stocks used in the UK—oilseed
rape, wheat and sugar beet—are rotational and therefore
move around the farm and therefore are not monocultures, could
be lost to third countries where we have monocultures of sugar
cane, palm oil or jatropha curas, and I think that is a
very important point to remember.
Q38 Mrs Moon: I would like to talk,
if I can, about the conflict between achieving food security and
energy security, because we are getting quite conflicting statements
made. We have, for example, a statement from yourselves saying
that food crops will not be adversely affected. You have said
already that the crops are dual-purpose, so you can go where the
market demand is, and at the moment, Mr Kendall, you have said
that a lot of the crop that you produce is exported and, in fact,
the market, if it was here, could at least remain in this country
which would also perhaps increase profit to you because you would
not be paying for the transport costs for export. Equally, we
have got the Food and Drink Federation expressing concern that
the financial incentives to go into biofuel production would impact
on costs for them of producing enough. The Margarine and Spreads
Association have also expressed concern. There is concern that
there is insufficient set-aside land to meet the increased capacity
that would be needed to provide the energy crops for biofuels.
Equally, we have got the RSPB expressing concern that the pressure
to provide additional land would result in set-aside land—that
is land of nature conservation value—being pulled into production.
How do we meet all these conflicting demands and create a balance
so that, if there are increased subsidies going into energy crop
production, we do not end up in a situation where we do not have
enough food stock production?
Mr Ware: First of all, the Food
and Drink Federation report comes from their European umbrella
body IMACE, which is the European margarine organisation, and
primarily their concerns arise from central Europe, primarily
Germany, where there is an awful lot of oilseed rape being used
for biodiesel because of the very preferential or no duty rate.
It is a different scenario in the UK. We have not got such an
imbalance. We see a mixture of bio-ethanol and biodiesel and we
have not got the same pressures. They have actually been to visit
us in the NFU and said that the prices are rising, what do we
think, and we actually said, "That is great." We want
our oilseed rape prices to increase. The point we would like to
make is that oilseed rape prices are actually recovering. They
were a lot higher back in the 1980s and early 1990s, they had
fallen and now they are recovering. The Food and Drink Federation
has been saying that their costs of production are going up, which
is true, but they are only recovering from what they were, they
are not historic highs. As far as the RSPB and set-aside land
goes, it is a slight misnomer because set-aside was never intended
to be for the environmental good, it was meant to be a way of
reducing our food mountains, and we should always remember that.
Now we have got the opportunity to change from food to fuel production,
and we are quite concerned about the whole set-aside scenario
because under the Single Farm Payment and CAP Reform it is likely
that set-aside will be removed by 2013 anyway, so we think it
is far better to base our bird and environmental policies on whole
farm approaches rather than just set-aside and put all our weight
behind the new entry level schemes and higher tier schemes to
get bird and environmental life enhanced across the whole farm
rather than just 9% of the farm, which you develop a great bird
habitat on and then in 2013 somebody comes along and ploughs it
up.
Mr Kendall: I am also unable to
grow energy crops on my set-aside already. For example, I would
have to have on my farm a couple of hundred acres of set-aside,
and I would grow that in winter oilseed rape and it goes for energy
crops on the back of that, and it is allowed to happen. It is
already happening on a percentage of the set-aside, but we feel
very strongly that set-aside was a market management tool and
should not be confused with an environmental tool.
Q39 Mrs Moon: To be fair to the RSPB,
they did talk about areas specific to nature conservation, such
as peat bogs, and they were talking about wetland sites. Their
concern was that you would go back into, for example, drainage
of land so that you would create new land for development, and
Defra, in fact, does say most energy crops are grown on set-aside
land in fact. I think again, Mr Kendall, you have talked about
dual-functionality and the fact that the way that a single crop
is manufactured and produced can actually save energy costs and
biomass. Can you go into that a little bit more?
Mr Kendall: Yes, I will talk about
dual-functionality in the crops I currently grow. We see a strong
bioethanol industry growing within the United Kingdom. I think
we see that very much as leading to more research and development
into modern varieties which will be higher in starch content,
might mean lower levels of fertiliser going on, might need different
pesticide regimes. We are optimistic that with a strong demand
structure for bioethanol we will see new varieties coming through
that are specifically developed for that. That would reduce their
dual-functionality, but I am sure they would still meet an animal
feed demand if required. The one thing I find comforting about
the whole generation of renewables, and I am nervous for the people
behind me who want to build these plants, but if we had a situation
where we had a number of years of very low production because
of some of the vagaries of climate change, I would rather have
the infrastructure in place and crops being grown. If we had to
draw on more fossil fuels for a period of time, we would still
have the crops being grown and they would still be there. To me
it is a better strategic reserve than the food mountains in Brussels
and intervention in other reserves. Every year we do it we are
reducing CO2 emissions, and let us encourage that.
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