Crops used for producing biodiesel, such as canola, are subject to price fluctuations caused by demand for the product as a food source.

When demand for the crops as a food source is high relative to supply, prices can rise to a point where biodiesel production ceases to be cost-effective compared with traditional fuel sources.

Australian Renewable Fuels commissioned the South Australian Research and Development Institute to conduct research into energy crops.

The institute has reported that canola, mustard and other raw biodiesel crops can be engineered to contain oil content considered too high for human consumption, thus establishing a biodiesel-specific crop.

The engineered oilseeds have been patented, and ARF holds the rights to exploit the research.

ARF told The Australian Financial Review that the new engineered oilseed crops could be ready for commercial production as early as 2007.

By establishing an energy crop, biodiesel producers such as ARF will no longer have to compete with food buyers, thus stabilising the cost of raw materials used in producing biodiesel, ARF told the newspaper.

ARF has previously said it was looking to offer five-year contracts to farmers and it was willing to link those five-year contracts to petroleum price.

With grain commodities trending downwards while oil prices are rising, many farmers would find this attractive, according to the company.

Although the oil content in the energy crops is too high for human consumption, the institute found that protein meal created as a byproduct of biodiesel production will still be suitable as commercial feed for livestock farmers.

For ARF, the ability to buy raw materials for biodiesel at a price linked to oil will ensure it is able to produce a fuel that is both environmentally friendly and cheaper than oil-based fuels.

The exploitation rights on the engineered oilseeds held by ARF could also provide another revenue stream for the company, which listed on the Australian Stock Exchange in May 2005.

ARF is building two plants, one in Adelaide and one in Picton, Western Australia.

The Adelaide plant is now running behind schedule, chief executive Darryl Butcher told the company's AGM yesterday.

"The Adelaide project has experienced delays to its completion date and budget over-runs," he said.

"These delays and over-runs may be attributed to the prevailing conditions in the Australian, and indeed, global construction industry.

"The Adelaide project is now scheduled to complete commissioning in February 2006, a delay of up to three months. Picton on the other hand is still scheduled to complete commissioning in March 2006 and has experienced no material delays. The delays in Adelaide will clearly lead to reduced production in the 2006 financial year."

ARF says its plants will use proven technology from Austrian company Energea and will each have the capacity to produce 44.4 million litres of biodiesel per annum.