You have probably heard about the big “food versus fuel” debate in the media recently. This debate focuses on the fear that growing competition between agrofuels and food commodities will have adverse effects on the food security of the poor. But how much of this story is true? Will the EU really be responsible for a deteriorating food situation in poor countries?
In this article I will try to shed some light on the issue and give an objective assessment of the many fears reported by the media. Agrofuels, liquid plant-derived fuels for the transport sector, are booming. While in 2002 the percentage of agrofuel use in the EU transport sector still stood at 0,3%, a staggering increase to 4,2% is expected by 2010. For 2020 a share of 10% has been agreed upon. The EU is supporting biofuels to reduce greenhouse gas emissions, offer an alternative to fossil fuels, increasing the sources in the energy mix and to offer new opportunities for farmers in rural areas.’ However, the political and corporate support for agrofuels is being faced by an ever-increasing body of scientific knowledge questioning the net benefits of agrofuels.
One issue in particular has recently got a lot of attention; the fuels versus food issue. The main line of argument goes as follows; as rising fossil fuel prices are rising, it creates demand for agrofuels. Because these agrofuels compete with food crops for the same land, water and other resources, competition ensues. This will negatively affect the supply of food crops (where agrofuels are more profitable), which in turn increase the price of food commodities. As food security depends, inter alia, on access to food (which decreases when prices rise), poor people might see their food security situation worsen as a result. In other words, rising agrofuel consumption in developed countries could compete with the food consumption in developing countries.
This is the whole issue in a nutshell. But how much of it is actually true? To answer this, we need to ask another two questions;
a) will agrofuel expansion lead to higher prices? and
b) will higher prices have negative or positive effects on the poor?
Starting with the first question, the answer looks like a negative. Besides other factors such as droughts, changing weather patterns and armed conflicts, two studies commissioned by the European Commission assumed that price changes ‘will not be dramatic, -…- relative to the prices in force today.’ or concluded that ‘large impacts on food prices are hardly to be expected’. However, seven other studies refute this and predict that agrofuel expansion will lead to price increases for raw products : It is very difficult to make these economic predictions as policies continuously reshape the already complex global food (and fuel) market system. The recent Mexican tortilla flour crisis during the late 2006 and early 2007 provides a case point. In less than four months time the price of maize in Mexico increased by 160% and was only halted by emergency state intervention. The reason for this short-term dramatic price increase can be found in the artificially cheap price of maize based ethanol through recently approved maize subsidies and ethanol subsidies (resting on a highly supportive governmental system), causing the food product to compete with fossil energy sources even when economic rationality would dictate otherwise. Another example closer to home is rapeseed, a feedstock grown primarily in Germany. In 2004 Germany produced 1035 million litres of biodiesel (mainly based on rapeseed), positioning itself as the world’s biggest producer. The growth in Germany has been driven by binding targets, tax exemptions (without quota limits), state aid and an energy crop credits, enabling the rapeseed based biodiesel to compete with fossil fuels, even when oil prices were lower than biodiesel prices. And although this has not led to food riots such as in Mexico, various organisations and companies have complained that the ‘artificial promotion’ is causing market distortions and contributing to higher rapeseed prices.
Having established that agrofuel expansion will most likely lead to increasing food prices, this does not automatically mean that it will have negative impacts on the food security of the poor. However, the actual impact of rising food prices on the food security of the poor, who account for just over 1/6 of the world’s population, depends on the feedstock’s share in the human diet and availability of reasonably priced alternatives. This explains why the recent price increase for maize in the USA had such dramatic impacts; many poor citizens in Mexico are highly dependent on cheap tortillas,´which are made from maize flour.
And when the price of their main food product shot trough the roof, riots and large demonstrations where the consequence. The poor in Mexico are not alone; ‘Sugarcane, maize, cassava, palm oil, soy and sorghum compromise about 30 percent of mean calorie consumption by people living in chronic hunger. In some countries, such as Guatemala, Malawi, and Tanzania -all countries with high rates of malnutrition people derive one-third or more of their calories from maize.’ Furthermore, when people switch to alternative food products, the price of these products will eventually go up as well. Finally, affluent consumers are less affected by rising prices, as they have better means to cope with higher prices.
This differentiated price elasticity thus further increases the unequal outcome between those that are likely to consume agrofuels and those that will see their food insecurity increase. Some commentators have argued that agrofuel expansion will actually benefit the poor, as it gives poor farmers more means of income, while they can also sell their products at higher prices.
While it will not be denied here that this could be the case, the reality is far more complicated. First, some poor countries are importers of food and fuel, meaning that the net results of higher prices will always turn out negative. Second, truly benefiting from the agrofuel boom and rising food prices requires a strong position to deal with the large economies of scale, something better enjoyed by large farm holders, agribusinesses and international traders.
In contrast, many farmers in the developing countries are smallholders, with an estimated 85% of them farming an area less than 2 hectares. Moreover, smallholders in for example Zambia, Bolivia, Ethiopia and Bangladesh produce more for their own consumption, and therefore do not share the benefits of increasing prices. It is critical to realize that not all the poor in developing countries are (smallholder) farmers; in Bangladesh, around 50% of its population are categorized as rural landless households. Around 282,52 million poor also live in cities and are net buyers of fuel and food. Thus, when energy and food prices rise in tandem, poor urban dwellers will be particularly hard-hit, spending more money on both energy and food.
After having analysed the scientific evidence, I can only conclude that agrofuels are not a sustainable solution with regard to the social problems discussed here, as agrofuels will distribute the benefits and burdens unevenly. Nonetheless, the European Commission is pushing ahead its binding 10% target, while providing only a weak mechanism to mitigate the possible food security risks for the world’s poor: ‘The Commission shall also monitor the commodity price changes associated with the use of biomass for energy and any associated positive and negative effects on food security.’ Based on these monitoring activities the EC will report every two years (starting year 2012) and ‘shall, if appropriate, propose corrective action’.
The Commission should drop it binding target and make a clear effort to produce a full impact assessment which examines the external effects of its policies and would guarantee participation of affected parties in its consultation procedures. This would limit the manufacturing of risks altogether and respect the precautionary principle. Moreover, it would show that the EU can, in fact, be a responsible partner in the globalised world and uphold the commitments made in the renewed Sustainable Development Strategy, where it pledged that it ‘ will factor the external dimension into its internal policy making.’