State-owned coal-miner Solid Energy has contracted South Island farmers to grow 5000ha of oil-seed rape this year to feed the growing biodiesel industry.
Within three years, Solid Energy plans to grow between 20,000ha and 25,000ha of oil-seed rape a year and produce 70 million litres of biodiesel, which will be blended with petroleum diesel.
Vehicles do not need modification to use it.
Biodiesel New Zealand manager Paul Quinn said Solid Energy established the company in 2007 and, after a trial crop last year of about 700ha, has contracted farmers from Southland to Canterbury to grow more of the biofuel feedstock.
Oil-seed rape was easily grown and known as a break crop, grown to break grain-crop rotations for soil health and pest benefits, so it would not interrupt the production of food.
Mr Quinn said 25,000ha was not a large area considering the amount of grain being grown.
"It's not that big when you look at the fact that just in grain alone, there is 370,000ha in the ground around New Zealand."
Those crops needed a break crop such as oil-seed rape, with autumn-sown crops harvested in February.
The biodiesel industry had had to turn down farmers willing to grow another 5000ha to 8000ha because they did not have the infrastructure to handle the extra volume.
Mr Quinn said recent increases in grain prices meant Biofuel NZ had to offer higher contracts to get the volume.
"Commodities have all gone through the roof, so we have to pay for it," he said.
Another issue was the Government's biofuels policy.
The Government has signalled intentions to make fuel companies supply a portion of biofuel, a move Mr Quinn said was essential to create a biofuel industry.
"If we are the only company to go ahead, we will not have an industry - just one big company."
Oil-seed rape biofuel was top quality, he said, and restored some of the performance values lost by diesel's low sulphur content.
Residue left once the oil has been extracted will be sold as a high-protein stock-feed.
Biofuel NZ plans to build a new manufacturing and storage facility near Christchurch, initially able to produce 15 million litres of biodiesel a year.
The company now produces 1 million litres a year.
