Food vs. fuel
Food versus fuel is the dilemma regarding the risk of diverting farmland or crops for biofuels production to the detriment of the food supply. The biofuel and food price debate involves wide-ranging views, and is a long-standing, controversial one in the literature.
Temporarely Oil price increases since 2003 may not only have resulted in increased demand for biofuels but as well increased food prices direectly. A World Bank study concluded that oil prices and a weak dollar explain 25-30% of total price rise between January 2002 until June 2008. Similarely, from 1971 to 1973, around the time of the 1973 oil crisis, corn and wheat prices went up by a factor of 3. There was no significant biofuel usage at that time.
There is disagreement about the significance of the issue, what is causing it, and what can or should be done to remedy the situation. This complexity and uncertainty is due to the large number of impacts and feedback loops. Already historical agriculture faced distribution dilemata between food and non food usage. The usage of yields for animal food, human dietary needs, non food purposes and future seeding implied a variety of complex decision making. In the past, a significant percentage of (middle European) farmers yields went into livestock used for transportation purposes. There are manifold historical solutions addressing the issues involved, as e.g. transportation problems have been mitigated e.g. by terracing, urban and garden agriculture.
The academic side of the debate is also blurred by the use of different economic models and competing forms of statistical analysis.
Food price increases 2007-2008
With global demand for biofuels on the increase due to the oil price increases taking place since 2003 and the desire to reduce oil dependency as well as reduce GHG emissions from transportation, the debate reached a global scale due to the 2007–2008 world food price crisis. However studies do show that biofuel production can be significantly increased without increased acreage. Therefore stating that the crisis in hand relies on the food scarcity.
An economic assessment report published by the OECD in July 2008 found that "...the impact of current biofuel policies on world crop prices, largely through increased demand for cereals and vegetable oils, is significant but should not be overestimated. Current biofuel support measures alone are estimated to increase average wheat prices by about 5 percent, maize by around 7 percent and vegetable oil by about 19 percent over the next 10 years."
Wheat and other stale food prices have dropped significantly after 2008, as well fuel costs.
Ethanol fuel as an oxygenate additive
The demand for ethanol fuel produced from field corn was spurred in the U.S. by the discovery that methyl tertiary butyl ether (MTBE) was contaminating groundwater. MTBE use as an oxygenate additive was widespread due to mandates of the Clean Air Act amendments of 1992 to reduce carbon monoxide emissions. As a result, by 2006 MTBE use in gasoline was banned in almost 20 states. There was also concern that widespread and costly litigation might be taken against the U.S. gasoline suppliers, and a 2005 decision refusing legal protection for MTBE, opened a new market for ethanol fuel, the primary substitute for MTBE. At a time when corn prices were around US$ 2 a bushel, corn growers recognized the potential of this new market and delivered accordingly. This demand shift took place at a time when oil prices were already significantly rising.
That food prices went up at the same time fuel prices went up is not surprising and should not be entirely blamed on biofuels. Energy costs are a significant cost for fertilizer, farming, and food distribution. Also, China and other countries have had significant increases in their imports as their economies have grown. Sugar is one of the main feedstocks for ethanol and prices are down from 2 years ago. Part of the food price increase for international food commodities measured in US dollars is due to the dollar being devalued. Protectionism is also an important contributor to price increases. 36% of world grain goes as fodder to feed animals, rather than people.
The 2008 controversy: Global food prices
As a result of the international community's concerns regarding the steep increase in food prices, on April 14, 2008, Jean Ziegler, a Swiss author and activist and temporarely the United Nations Special Rapporteur on the Right to Food, at the Thirtieth Regional Conference of the Food and Agriculture Organization (FAO) in Brasília, called biofuels a "crime against humanity", a claim he had previously made in October 2007, when he called for a 5-year ban for the conversion of land for the production of biofuels. The previous day, at their Annual International Monetary Fund and World Bank Group meeting at Washington, D.C., the World Bank's President, Robert Zoellick, stated that "While many worry about filling their gas tanks, many others around the world are struggling to fill their stomachs. And it's getting more and more difficult every day."
Luiz Inácio Lula da Silva gave a strong rebuttal, calling both claims "fallacies resulting from commercial interests", and putting the blame instead on U.S. and European agricultural subsidies, and a problem restricted to U.S. ethanol produced from maize. He also said that "biofuels aren't the villain that threatens food security."
A World Bank research report published on July 2008 found that from June 2002 to June 2008 "biofuels and the related consequences of low grain stocks, large land use shifts, speculative activity and export bans" pushed prices up by 70 percent to 75 percent. The study found that higher oil prices and a weak dollar explain 25-30% of total price rise. The study said that "...large increases in biofuels production in the United States and Europe are the main reason behind the steep rise in global food prices" and also stated that "Brazil's sugar-based ethanol did not push food prices appreciably higher". The Renewable Fuels Association (RFA) published a rebuttal based on the version leaked before its formal release. The RFA critique considers that the analysis is highly subjective and that the author "estimates the impact of global food prices from the weak dollar and the direct and indirect effect of high petroleum prices and attributes everything else to biofuels."
An economic assessment by the OECD also published on July 2008 agrees with the World Bank report regarding the negative effects of subsidies and trade restrictions, but found that the impact of biofuels on food prices are much smaller. The OECD study is also critical of the limited reduction of GHG emissions achieved from biofuels produced in Europe and North America, concluding that the current biofuel support policies would reduce greenhouse gas emissions from transport fuel by no more than 0.8 percent by 2015, while Brazilian ethanol from sugar cane reduces greenhouse gas emissions by at least 80 percent compared to fossil fuels. The assessment calls on governments for more open markets in biofuels and feedstocks in order to improve efficiency and lower costs. The OECD study concluded that "...current biofuel support measures alone are estimated to increase average wheat prices by about 5 percent, maize by around 7 percent and vegetable oil by about 19 percent over the next 10 years."
Another World Bank research report published on July 2010 found their previous study may have overestimated the contribution of biofuel production, as the paper concluded that "the effect of biofuels on food prices has not been as large as originally thought, but that the use of commodities by financial investors (the so-called "financialization of commodities") may have been partly responsible for the 2007/08 spike."
- Biofuel advocacy groups
- methanol economy
- methanol fuel
- Commodity price shocks
- Corn stoves
- Distillers grains
- Ethanol economy
- Ethanol fuel in Australia
- Ethanol fuel in Brazil
- Ethanol fuel in Sweden
- Ethanol fuel in the Philippines
- Ethanol fuel in the United States
- Food security
- Oil depletion
- Vegetable oil economy
- World Agricultural Supply and Demand Estimates (monthly report)
- 2007–2008 world food price crisis
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- Biofuel: the burning question
- Understanding the Global Rice Crisis
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- ‘Weak correlation' between food and fuel prices Farm and Ranch Guide: Regional News
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- World sugar supply to expand - 3/6/2008 6:38:00 AM - Purchasing
- Sugar #11 (SB, NYBOT): Monthly Price Chart
- PINR - Soaring Commodity Prices Point Toward Dollar Devaluation
- Forex Trader Top 3: G7, Worldwide Food Prices, and Consumer Sentiment: Financial News - Yahoo! Finance
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- FAO World Food Situation
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