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A premium for biobased products

04.04.2011

An industry based on renewable resources is not to be had for free. Switching from petroleum-driven large-scale industry to a biobased economy will cost both time and money. But the question is – who will pay for it? Can you communicate to the consumer that they will be paying a premium, but that the change is worth it? Or will a biobased product inevitably fail if it is more expensive than a conventional counterpart?


There are obviously no simple answers to those questions, and those given by captains of industry and leading politicians will vary according to individual interests. Maive Rute, who heads the European Commission’s Directorate of Food, Agriculture and Biotechnology, presented the latest statistics during the “European Industrial Biotechnology World 2011” convention. A few years ago the European Commission started the "Knowledge-based Bio-Economy" (KBBE) programme to help foster a key role for biotechnology in the future. “Between 2007-2010, a total of 51 projects involving approximately 730 participants were supported with public funds exeeding a520m,” said Rute in mid-February in Amsterdam. But with public research funding alone, biotech probably won’t leave the niche. “We need a policy push to build demonstration plants,” stressed Christophe Luguel, the Scientific Coordinator at Biorefinery Euroview. Critics remain unconvinced that subsidies or tax deductions will provide a big boost. “Public funding in the inital phase is OK, but in the long run, industry has to stand alone,” said Klaus Neumann, vice president at Norwegian Borregaard Ind. Ltd.
So will companies be able to convince the buyer to pay a premium for a bio-based product? Several firms are preparing to prove they can. Among them is Dutch start-up SkyNRG, which produces a green aviation fuel that costs two to four times more than conventional kerosine. Dutch airline KLM says it is willing to pay part of the bill, and SkyNRG CEO Dirk Kronemeijer has found another partner help defray the cost – a multinational bank. Instead of paying for sometimes dubious emissions compensations, the bank has decided to support the use of the CO2-neutral green jet fuel.

“The change will take time”

Companies in related large-scale industries continue to be dubious about the significance of renewable resources. “It’s not about using biomass, it’s about making money,” says Matthijs Ruitenbeck, a Senior Scientist at Dow Benelux. Dow’s 14 petrochemical “steam cracker” plants worldwide cost US$15bn to build. It therefore comes as no surprise when Russel Mills, Director at Dow Chemicals, predicts that “the change will take time.” While the world’s leading ethylene producer remains sceptical, however, others are moving forward. Brazil-based Braskem S.A. officially inaugurated the first sugarcane-fed polyethylene plant last September. The 200.000 metric tons of bioplastic it will produce this year were sold before the plant even went online – at a 50% premium.
Companies like Tetrapak, Johnson & Johnson or Procter & Gamble are among the clients. Danone is also currently changing the packaging for it’s Activia joghurt. The new plastic consists of polylactic acid (PLA), which is made from cornstarch. “We would like to see a stronger commitment among consumers to pay for environmental benefits. However, we won’t change the recommended retail price at the moment,” said head of Danone Germany Andreas Ostermayer in an interview with the German daily the Handelsblatt.
These examples show that premiums for bio-based products are possible, but producers are worried about consumer backlash. Sky­NRG successfully advocated for a premium from its customer and the end-consumer – but Danone has decided to lay low and pay the higher cost on its own.

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