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Tesco is poised to unveil plans to construct a new factory for producing bio-diesel as an alternative road fuel.

The government has announced a target of manufacturing five per cent of fuels using some quantity of biofuel by 2010.

And yesterday environment minister, Margaret Beckett, spoke to delegates at the National Farming Union (NFU) conference of a "significant new initiative" that would lead to a "substantial new market for UK farmers", according to the Press and Journal.

David Reid, the chain's chairman, is now set to address the conference today.

Tesco's £13.5 million facility is being built in Humberside together with US firm Cargill and renewable energy company Greenenergy.

It is expected to have the capacity to manufacture 114 million litres of the fuel every year, which will be served to drivers stopping off at 150 of Tesco's petrol stations nationwide.

It should be complete by the end of the year, according to Namnews.

Reports have suggested Mr Reid was due to be met with a somewhat hostile reception at the union's meeting on account of Tesco's immense power in the food supply chain.

However, Tesco's bio-diesel could also turn into an attractive alternative revenue stream for farmers, particularly as most of the fuel is currently imported from other European countries.

Biofuels are manufactured from agricultural crops such as oilseed rape, wheat and barley.