Sustainable aviation fuel (SAF) opportunities on horizon for Australian agriculture

The Rabobank report says while the future development of a local SAF-production industry in Australia is still “far from certain”, SAF will “be big globally” and Australia’s agricultural producers could regardless benefit from growing international demand for feedstock for its production.

“Developing an Australian SAF industry would be beneficial for agriculture, as it could provide another demand outlet for canola, sugar, bagasse (a sugarcane production residue), tallow and potentially grains,” Mr Vogel said. “And the development of the global SAF industry can further benefit Australian farmers who may become feedstock suppliers to these export markets.”

In addition, the report said, another big benefit for farmers – if legislation and value chain settings are right – can come in assisting in their transition to lower-emission farm production. “The lower the carbon footprint these agricultural feedstocks have, the higher the price premium they are likely to be able to command,” Mr Vogel says, potentially providing “a key accelerator” for farmers and the supply chain to produce lower carbon products.

Emissions problem

The global aviation industry has an “emissions problem” and “agriculture could play a big part in solving it”, the report says.

Mr Vogel said within two years, there is planned capacity to produce 17 million tonnes of sustainable aviation fuel around the globe, growing to over 25 million tonnes by 2030 – “a significant volume which would be equivalent to almost half of the global biodiesel volume in 2023”.

“The good news for growers in Australia, and around the world, is that this announced SAF capacity will often require agricultural products as feedstock – with three quarters of the announced global production capacity expected to use a technology that requires fats such as vegetable oil, animal fat, or used cooking oil and almost 10 per cent requiring ethanol derived from sugarcane or grain,” he said.

The “new biofuel industry”

Demand for SAF feedstocks may play out in a similar way to demand for feedstocks for the global biodiesel industry, the Rabobank report says.

“Farmers may want to think about the future of SAF as a potential next wave of demand, similar to what we have seen globally over the past two decades for road transport biofuel,” Mr Vogel said.

“In this time, Australian farmers have benefitted directly from European Union (EU) demand for canola for biofuels, with the EU having long been Australia’s largest market for canola. And farmers have also benefitted indirectly, through price, from the additional demand created around the world for other biofuel feedstocks especially grain prices due to the US ethanol industries’ demand for grains.”

Indeed, the report says, with the biofuel industry likely facing volume reductions in several regions of the world in coming years – due to a higher share of electric and other alternative-fuel vehicles on the road – Australian agricultural sector needs a “new demand driver” like sustainable aviation fuel.

“SAF could offset these volume reductions in road transport biofuels to help keep farmgate prices for feedstocks, like canola and oilseeds in general, but also grain and sugar, at positive farm margin levels,” Mr Vogel said.

The report notes that while many regions of the world permit the use of agricultural products and bi-products for SAF production, this is not the case in the EU, which has implemented policies that prevent food crops from being used in the decarbonisation of the airline and maritime industries, while agricultural feedstocks are allowed to remain the key feedstocks for biofuels for the EU road transport sector.

Most promising

Currently, the Rabobank report says, vegetable oil and sugar cane are the most economically-attractive feedstocks in Australia – in terms of both cost per litre of fuel and also cost per unit of emissions reduction. “And these might become even more attractive as carbon capture and reduced-emission farming practices cut the emissions intensity of these feedstocks,” Mr Vogel said.

Grain and ethanol also hold promise as SAF feedstocks, while, in the long-term future, “municipal waste (household rubbish) and cellulosic materials (such as sawdust) could also pull their weight if the economics of converting those feedstocks into SAF improve”, the report says.

Local SAF production

Australia’s own SAF industry is still in its infancy, the report says, with local SAF consumption currently largely driven by voluntary airline action at levels currently not much larger than initial trials.

“Demand for SAF in Australia will rise over time, as airlines are expected to become more aggressive in their decarbonisation efforts and also government financial support, such as in the form of the latest budget, help fast track investments,” Mr Vogel said.

The report says in order for a SAF industry to be developed locally and scaled to meaningful levels, there needs to be strong commitment from the aviation industry to use these fuels, supported by legislation focused on carbon reduction.

Mr Vogel says opportunities exist for scaling up of local Australian SAF production from oilseeds and sugar/bagasse, though “given Australia does not have a significant grain ethanol industry, it seems unlikely, although not impossible, that a grain-based production stream will rise to scale despite the large amount of grain produced in Australia that largely is exported”.

Future demand

While the worldwide SAF industry currently focuses heavily on technology that requires agricultural products as feedstocks, this may change during the 2030s, the report warns.

“In the longer term, the agricultural winners may lose out to non-agricultural feedstocks as other technologies advance and improve their efficiency and economics,” it said.

“Nonetheless, for at least the next decade, SAF can generate more demand for agricultural products and economic benefits for farmers.”

Rabobank Australia & New Zealand Group is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 125 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 37 countries, servicing the needs of approximately 8.4 million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand Group is one of Australasia’s leading agricultural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 90 branches throughout Australia and New Zealand.