At a time when the European Union wants to increase biofuel use to stop global warming, Germany in late 2006 started taxing biodiesel as the government said it could not afford to lose the large tax revenue from fossil diesel.

A second round of tax increases on biodiesel is on the statute book and scheduled to be imposed in January 2008. The government so far has refused calls to reconsider this.

"I am still optimistic that the government will change its course," Kliem said on the sidelines of a presentation at the Agritechnica agricultural trade fair.

Germany's government had said it would present a report on biofuels taxes in September but nothing has been announced and some observers fear time is running out before the planned tax rise in January.

Kliem said UFOP and other industry associations were continuing to lobby the government to change its position.

"I believe it can still be done," he said.

Even if the second tax rise were suspended, changes were likely in Germany's biodiesel industry which UFOP estimates now has annual production capacity of 4.3 million tonnes annually.

"At the very least we are in a consolidation phase and in Germany we are at the end of the time when more (biodiesel) production units will be built," Kliem said. "The uncertainty about taxation means investment in new biodiesel production plants is not to be expected."

Biodiesel was a critical market for German rapeseed. He said UFOP estimates about 75 percent of German rapeseed oil is consumed by non-food industry -- largely biodiesel production -- and only 25 percent goes for food.

Despite the uncertainty in Germany's biodiesel sector, Kliem said he believed demand for vegetable oil would continue to rise in the medium and long term.

"The EU has set goals to reduce global warming which will increase biofuels production in countries other than Germany," he said.

Germany had until now shown among the strongest growth in European biofuels production but other countries were now likely to follow.

"It may well be that German biodiesel production plants will be dismantled and will resume operations in other European countries," he said. "This could in turn mean that we have new export opportunities for our vegetable oils."