NEW DELHI: When nations meet under the aegis of the United Nations’ Food and Agriculture Organisation (FAO) in early June to discuss the food crisis facing the world, the US, among the world’s largest producers and consumers of biofuels, is sure to come under pressure to gradually reduce the quantum of subsidies to biofuel raw materials, such as corn. Actually, the countries hit by the global food crisis are not going to brandish their sword for overnight dismantling of all subsidies for biofuels, which is clearly an impractical proposition at this juncture.
Instead, they would pitch for the establishment of a global market/trade regime with transparent standards for biofuels.
Concomitantly, this set of countries, including India, would also make a case for the lowering of trade barriers against imports from more natural biofuel exporters, such as Brazil which uses the relatively more efficient (since molasses are a byproduct) sugarcane route to biofuel.
Implicit in all this is the acknowledgement that subsidies for biofuels are anti-poor and that biofuels are among the key guzzlers of food acreage worldwide. Commodity analysts are already suggesting that some degree of automatic correction on the biofuel front, primarily in reaction to exceedingly high world food staple prices last year, would ensure that only a moderate hike in prices happens in 2008 compared to the major spikes seen worldwide, including in India, in 2007.
But with increased demand for alternative fuel likely in the future, prices will be driven up for such produce, and is therefore likely to remain a big threat in the coming years to area under food crops.
Thanks to the US’ heavy subsidies to farmers for growing energy crops, mainly maize, often at the expense of soyabean and wheat, US farmers have massively shifted their cultivation towards biofuel feedstocks. About 30% of US’ maize produce will go into ethanol in 2008, rather than into the world food and feed market, according to an April 2008 IFPRI paper Rising Food Prices: What Should Be Done? Even the growing world population demands more food of different kind and rapid climatic changes.
Speculative capital attracted by fast moving commodity prices added to the pressure on food prices. In short, the agenda is likely to tackle head-on the current worrying mismatch between agriculture and energy and seek to establish a more balanced equation between the two which focuses on the food needs of the poor worldwide and insulates them sufficiently from severe adverse fallout from the ongoing crisis.
Brazil and the US dominate today’s ethanol market. Ethanol accounts for over 90% of the biofuel production currently. The EU, on the other hand, is the world’s largest producer and consumer of biodiesel. With oil prices shooting up (now it is $119/barrel), both regions have contributed to boosting ethanol and biofuel production from nil in 1991 to over 35 billion litres and over 3.5 billion litres, respectively by 2005.
But with key countries such as the US, EU, Brazil, India and China set to jack up their ethanol production by 16, 45, 8, 15 and 3%, respectively by 2010-11 and the USA, EU, Malaysia, Indonesia and Thailand set to notch up annual production of biodiesel by 19, 37, 248, 143 and 70%, respectively in the same period, it is high time that the real cost to world food security from the biofuel boom is assessed threadbare by a global forum.
That macro cost-benefit analysis would necessarily also consider the fact that while net production costs differ widely among nations, the cost of feedstock is still as high as 50-70% for ethanol and 70-80% for biodiesel. The prices of corn, rice, sugar, wheat, oilseeds have flared up in consonance with the price of crude oil between 1999 and 2007.
IFPRI projects that on the basis of actual plans and assumed expansions, the price of corn and oilseeds will go up by 3% and 8% respectively. If the expansion plans on biofuels are doubled by key countries, that could push up corn and oilseed prices by 13% and 17%, respectively. However, if ongoing research for alternative sources of eco-friendly fuel is neglected and does not bear fruit and biofuel expansion plans are nonetheless pursued, corn and oilseeds prices could go up between 20-41% and 26-71%, respectively by 2020.
An intelligent, commonly agreed biofuel policy with accountability by nations would have to be formulated. “Biofuel subsidies in the US and ethanol and biodiesel subsidies in the EU have proven to be misguided policies that have distorted world food markets. Subsidies on biofuel crops also act as an implicit tax on staple foods, on which the poor depend the most. Developed country farmers should make decisions about what to cultivate based not on subsidies but on world market prices for various commodities,” argues IFPRI DG Joachim von Braun.
Significantly, some analysts have argued for continued subsidies by the US, arguing that this is what keeps global food prices buoyant and presents a golden opportunity to developing countries with significant food output such as India to hike production and sell to the world.
In an April 10 paper by Heidi Fritschel republished in the ISN Security Watch article on The Price of Food: Global Crisis Ingredients, David King, secretary general of the International Federation of Agricultural Producers (IFAP) contends: “We agree that rising food prices are a golden opportunity to improve the poor farmers’ livelihood. However, this opportunity will not be realised if farmers are not organised in the market, constitute partners on policies to attract investment for modernising agriculture and provided with improved technology and infrastructure.”
Unfortunately, investments in agricultural infrastructure, institutions and science and technology take time to put into operation and bear fruit, points out Fritschel. In fact, there is no guarantee that small farmers will benefit from production increases and high prices. IFPRI researchers have suggested that high food prices may attract better-placed large farmers to compete for small farmer land and oust them.
Instead, they would pitch for the establishment of a global market/trade regime with transparent standards for biofuels.
Concomitantly, this set of countries, including India, would also make a case for the lowering of trade barriers against imports from more natural biofuel exporters, such as Brazil which uses the relatively more efficient (since molasses are a byproduct) sugarcane route to biofuel.
Implicit in all this is the acknowledgement that subsidies for biofuels are anti-poor and that biofuels are among the key guzzlers of food acreage worldwide. Commodity analysts are already suggesting that some degree of automatic correction on the biofuel front, primarily in reaction to exceedingly high world food staple prices last year, would ensure that only a moderate hike in prices happens in 2008 compared to the major spikes seen worldwide, including in India, in 2007.
But with increased demand for alternative fuel likely in the future, prices will be driven up for such produce, and is therefore likely to remain a big threat in the coming years to area under food crops.
Thanks to the US’ heavy subsidies to farmers for growing energy crops, mainly maize, often at the expense of soyabean and wheat, US farmers have massively shifted their cultivation towards biofuel feedstocks. About 30% of US’ maize produce will go into ethanol in 2008, rather than into the world food and feed market, according to an April 2008 IFPRI paper Rising Food Prices: What Should Be Done? Even the growing world population demands more food of different kind and rapid climatic changes.
Speculative capital attracted by fast moving commodity prices added to the pressure on food prices. In short, the agenda is likely to tackle head-on the current worrying mismatch between agriculture and energy and seek to establish a more balanced equation between the two which focuses on the food needs of the poor worldwide and insulates them sufficiently from severe adverse fallout from the ongoing crisis.
Brazil and the US dominate today’s ethanol market. Ethanol accounts for over 90% of the biofuel production currently. The EU, on the other hand, is the world’s largest producer and consumer of biodiesel. With oil prices shooting up (now it is $119/barrel), both regions have contributed to boosting ethanol and biofuel production from nil in 1991 to over 35 billion litres and over 3.5 billion litres, respectively by 2005.
But with key countries such as the US, EU, Brazil, India and China set to jack up their ethanol production by 16, 45, 8, 15 and 3%, respectively by 2010-11 and the USA, EU, Malaysia, Indonesia and Thailand set to notch up annual production of biodiesel by 19, 37, 248, 143 and 70%, respectively in the same period, it is high time that the real cost to world food security from the biofuel boom is assessed threadbare by a global forum.
That macro cost-benefit analysis would necessarily also consider the fact that while net production costs differ widely among nations, the cost of feedstock is still as high as 50-70% for ethanol and 70-80% for biodiesel. The prices of corn, rice, sugar, wheat, oilseeds have flared up in consonance with the price of crude oil between 1999 and 2007.
IFPRI projects that on the basis of actual plans and assumed expansions, the price of corn and oilseeds will go up by 3% and 8% respectively. If the expansion plans on biofuels are doubled by key countries, that could push up corn and oilseed prices by 13% and 17%, respectively. However, if ongoing research for alternative sources of eco-friendly fuel is neglected and does not bear fruit and biofuel expansion plans are nonetheless pursued, corn and oilseeds prices could go up between 20-41% and 26-71%, respectively by 2020.
An intelligent, commonly agreed biofuel policy with accountability by nations would have to be formulated. “Biofuel subsidies in the US and ethanol and biodiesel subsidies in the EU have proven to be misguided policies that have distorted world food markets. Subsidies on biofuel crops also act as an implicit tax on staple foods, on which the poor depend the most. Developed country farmers should make decisions about what to cultivate based not on subsidies but on world market prices for various commodities,” argues IFPRI DG Joachim von Braun.
Significantly, some analysts have argued for continued subsidies by the US, arguing that this is what keeps global food prices buoyant and presents a golden opportunity to developing countries with significant food output such as India to hike production and sell to the world.
In an April 10 paper by Heidi Fritschel republished in the ISN Security Watch article on The Price of Food: Global Crisis Ingredients, David King, secretary general of the International Federation of Agricultural Producers (IFAP) contends: “We agree that rising food prices are a golden opportunity to improve the poor farmers’ livelihood. However, this opportunity will not be realised if farmers are not organised in the market, constitute partners on policies to attract investment for modernising agriculture and provided with improved technology and infrastructure.”
Unfortunately, investments in agricultural infrastructure, institutions and science and technology take time to put into operation and bear fruit, points out Fritschel. In fact, there is no guarantee that small farmers will benefit from production increases and high prices. IFPRI researchers have suggested that high food prices may attract better-placed large farmers to compete for small farmer land and oust them.
No comments:
Post a Comment