July 20, 2007
ROME -- Rome's obsession with food goes beyond the pizzerias and the
trattorias that make it a gastronomical wonder. Appropriately, the city
is also home to three United Nations food agencies whose job,
ultimately, is to keep the undernourished fed. They wonder whether
biofuel is an item that should be struck from the planet's menu.
Biofuel is any fuel made from plants. Corn from Canada, sugar cane from
Brazil and jatropha from India can be used to make fuels such as ethanol
and biodiesel. As oil prices climb, more and more agricultural land is
being devoted to fuel crops, not food crops. Less food translates into
higher food prices and perhaps more hunger. Fill your tank with ethanol
and you might contribute to famine in Africa. As if you didn't feel
guilty enough owning an SUV.
No one is suggesting - yet - that biofuel production is leading to
starvation. But biofuel is suddenly a big business and demanding the
attention of farmers everywhere.
In the United States alone, some 100 ethanol plants are under
construction and vast amounts of corn are being grown to supply them.
Soaring biofuel production is at least partly blamed for food inflation
(Statscan this week reported a 3.1-per-cent rise in Canadian food prices
from last year).
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The Globe and Mail
In Rome, the World Food Program, the UN agency charged with fighting
famine, said its budgets are being strained because of surging food
prices. It blames biofuel production, rising food demand from China and
India, and harsh weather. The agency will have to find more donor money
or feed fewer people; there are no other options.
There is no doubt food prices are climbing rapidly. Nestlé chairman
Peter Brabeck-Letmathe told the Financial Times this month that food
prices are set for "significant and long-lasting inflation." The
International Monetary Fund recorded an unprecedented 23-per-cent rise
in food prices in the past 18 months. The U.S. Agriculture Department
says global grain inventories are at their lowest levels in 30 years.
The International Grains Council predicts industrial use of grains will
rise 23 per cent to 229 million tonnes in 2007-08, with the ethanol
industry chewing through almost half that amount.
Is a biofuel backlash coming? The world has 800 million cars. If filling
them with ethanol and other plant-derived fuels keeps pushing prices up,
the world's two billion poor people will have something to say about it.
Retaliation seems inevitable.
While clamping down on biofuels seems the humane thing to do, it may not
necessarily be the best thing to do. The first thing to remember is that
agricultural commodity prices have declined dramatically, measured in
real (inflation-adjusted) terms for the past 40 years or so. In spite of
the recent rise, prices are still well below their historic norm.
The second thing to remember is that biofuels may (or may not) fit into
any farmer's needs. Farmers around the world have three basic
requirements - they need cash, they need food for themselves and they
need to feed their farm animals. If growing plants for biofuels boosts
cash generation with scant damage to the other two requirements, the
farmer might be better off.
Vinit Raswan, a technical adviser in Rome to the UN's International Fund
for Agricultural Development (IFAD), also notes that technology has to
be factored into the equation. In a plant, the greatest sugar content
resides in the stock, not the fruit or the leaves. The latest plant
technology might allow farmers to grow plants with bigger stalks. If
this works, biofuel production could rise without severely hurting food
What is certain is that farmers, like other business people, react to
market signals. The signals now tell them to plant crops for biofuels.
The problem is that, in many parts of the world, biofuels are heavily
subsidized by the taxpayer. This is especially true in the United States
and Canada, where corn-based ethanol would not exist without the endless
government handouts. The market signals, in other words, are warped.
Left on its own, the market in time would find a balance between food
and fuel production. As it is, the billions in subsidies are encouraging
a dramatic rise in biofuel production that would not otherwise occur.
This is partly why the UN food agencies are worried. Too much biofuel is
coming to the market too quickly and the casualties might be the poor
who can't afford the sharply rising food prices.
Check for earlier Pacific Biofuel posts: http://pacbiofuel.blogspot.com/