In the last decade, biofuels attracted considerable interest and expectations, especially as a resource that could potentially mitigate climate change, contribute to energy security and support agricultural producers around the world. Many governments cited these goals as justification for implementing policies promoting the production and use of liquid biofuels based on agricultural commodities . This is especially true in the European Union (EU), the United States (US) and Brazil. Since then, there has been a marked change in the perception of biofuels.
Recent analyses have raised serious questions about the full environmental impacts of producing biofuels from an already stressed agricultural resource base . The costs of policies aimed at promoting liquid biofuels (and their possible unintended consequences) are beginning to attract scrutiny . Food prices have risen rapidly, sparking protests in many countries and giving rise to major concerns over the food security of the world’s most vulnerable people.
The controversy about the role of biofuels in the sharp increase in food prices
A "leaked and unofficial" World Bank internal report revealed in the Guardian on 3 July 2008 stirred up a hornet's nest. The report concludes that biofuels have forced global food prices up by 75%, i.e. far more than previously estimated. Although the report was finished in April, it was not published to avoid embarrassing the US government, which had claimed biofuels have pushed up prices by only 3% .
An official report was later published by the World Bank in a slightly different (more moderate) form . The latter concludes: "The increase in internationally traded food prices from January 2002 to June 2008 was caused by a confluence of factors, but the most important was the large increase in biofuels production from grains and oilseeds in the U.S. and EU. The combination of higher energy prices and related increases in fertilizer prices and transport costs, and dollar weakness caused food prices to rise by about 35-40 percentage points from January 2002 until June 2008. These factors explain 25-30% of the total price increase, and most of the remaining 70-75% increase in food commodities prices was due to biofuels and the related consequences of low grain stocks, large land use shifts, speculative activity and export bans."
An earlier estimate by the International Monetary Fund (IMF) stated that the increased demand for biofuels accounted for 70% of the increase in corn prices and 40% of the increase in soybean prices . According to another study by the International Food Policy Research Institute (IFPRI), the increased biofuel demand during the period 2000-2007, compared with previous historical rates of growth, is estimated to have accounted for 30% of the increase in weighted average grain prices (39% of the increase corn prices, 21% of the increase in rice prices and 22% of the rise in wheat prices) .
Following the publication of the World Bank report, various studies have evaluated the impact of biofuels on food commodity prices . In particular, European Commission analyses indicated that current EU biofuel production has little impact on current global food prices, as biofuels use less than 1% of EU cereal production. EuropaBIO and eBIO also show that the demand for biofuels has only had a marginal impact on global agricultural commodity price rises , thereby supporting the Commission's point of view.
While there is a consensus on which factors are relevant to the recent sharp rise of food commodity prices, views and analyses differ with regard to their relative importance. The observed price movements are the result of a complex combination of both structural and more temporary factors. Furthermore, the degree by which each factor explains increases in prices varies by commodity and by region . The causes behind price rises for wheat and rice are substantially different from those for maize and soya. The former have been strongly determined by supply-side issues. In the case of the latter, demand growth has played a major role. Supply-side factors appear to have triggered greater price responses than has demand growth.
Factors having contributed to the sharp increase in food commodity prices
Although most studies agree on the factors which affected food prices (directly or indirectly), there is no consensus on the actual role of biofuels nor on that of any other individual factor. These factors include (in random order):
weather and crop disease issues in 2006-2007 in some major grain- and oilseed-producing areas
reduction in stocks due lower than expected harvests
limited international commodity trade due to the imposition of export restrictions in various countries
speculation in the commodity markets (incl. surging outside investor influence)
depreciation of the U.S. dollar relative to the Euro and other world currencies
increases in the price of crude oil
increases in production costs, especially those driven by higher crude oil prices such as fertilizers and diesel
lower level of investment in agricultural research leading to lower growth in productivity in commodity production
growing food demand and dietary transition to more animal protein in developing countries resulting in global consumption increasing faster than production
structural changes in the demand for cereals and oilseeds due to biofuels (e.g. biofuels programs in the US and EU, which provide subsidies and mandates for biofuels)
diversion of land from food or feed production to production of energy biomass
In the US, 18% of the 2007 corn crop was processed into bioethanol and feed co-products (source: RFA). This figure is expected to reach about 25% in 2008.
In the EU, cereal consumption for bioethanol in 2007 only accounted for 0.09% of the global cereal production (or 0.7% of the EU cereal production) with over 40% of it being grown on set-aside land (i.e. where food production was forbidden). In addition, one third thereof goes into the feed chain as high protein cattle feed (DDGS) and replaces soy meal (source: eBIO). Finally, the EU uses a variety of feedstock for bioethanol production (such as wheat, rye, barley, maize and sugar beet), contrary to the US (only maize) and Brazil (only sugarcane).
With a share of 36% of the global production of rapeseed oil in 2007, the EU is the largest consumer of rapeseed oil. In the past few years, the EU consumption increased continually especially because of the extra demand of the biodiesel industry. EU biodiesel demand for rapeseed oil however is presently flattening. Although official statistics have not yet been published, it is estimated that in 2008, 62% of EU rapeseed oil consumption were intended for biodiesel. Total rapeseed oil consumption for the food sector in the EU was around 2.9 million tons in 2008, i.e. a return to the level of 2001/2002 (source: Product Board MVO).
Conclusions and perspectives
The development of biofuel programs in developed and developing countries is closely linked to the potential expansion of feedstock production and to the impact that this expansion may have on the production structure of the producing countries and/or on global agricultural markets.
Several studies have attempted to evaluate the future impact of biofuel production on commodity prices. Results however should be interpreted with caution as work on models that combine agricultural and biofuel markets is still at an early stage. The development of biofuels indeed affected and will keep affecting food commodity prices. To what extent food prices are affected however remains an open question. More research is needed and is being carried out to improve the understanding of the effects of increasing biofuel demand on food commodity prices.
In particular, a significant effort shall be given to the understanding and modeling of indirect impacts of biofuels (whether in terms of food prices or land use). Even if biofuels themselves are made using raw materials from land already in arable use, the net increase in demand for crops caused by the promotion of biofuels could lead to a net increase in the cropped area. It is therefore appropriate to introduce accompanying measures to encourage an increased rate of productivity improvement on land already used for crops, the use of degraded land, and the adoption of sustainability requirements. According to the Joint Research Center of the European Commission , indirect land-use change could potentially lead to enough greenhouse gas emissions to negate the savings from biofuels production and use. However, the magnitude of these effects is not event roughly known .
The development of second- and third-generation biofuels (incl. cellulosic bioethanol, BTL-fuels or yet biofuels produced from algae) shall significantly reduce the pressure on food crops and resources in the future. New-generation biofuels can be produced from alternative non-food raw materials (e.g. residues from agriculture and forestry, dedicated energy crops or algae) and indeed have the potential to reduce land requirements and increase productivity. Second-generation biofuels however are still at the pilot plant stage and are unlikely to be competitive without subsidies before 2015-2020. In the meantime, first-generation biofuels can still contribute to the substitution of fossil fuels and reduction of GHG emissions, provided they are produced in a sustainable way and provided appropriate policy measures are implemented at both national and international levels.
The position of Switzerland
The position of BioFuels Switzerland (the Swiss association for biofuels) in the present "food vs. biofuels" debate is very clear: Food crops must first be used for human food, then animal feed and lastly for biofuel production. In a press release of June 24, 2008, the Swiss Farmers Union expresses its position regarding biofuels: "Even though food production will remain the priority and although the agricultural land available in Switzerland does not lend itself to large-scale cultivation of raw materials for biofuel production, the Swiss Farmers Union requires that it be possible to explore the potential offered by these new opportunities" .
As far as the Swiss Confederation is concerned, biofuels produced out of wastes and residues are those preferred and favored by the government, because of their environmental and ecological merit and because they do not compete (at least directly) with food and feed. The Swiss policy regarding biofuels is mostly concerned with the revised Mineral oil taxation law (Limpmin) and the entry into force of the corresponding Order (Oimpmin) on July 1, 2008.
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FAO (2008). The right to food and the impact of liquid biofuels
FAO (2008). The state of food and agriculture 2008
OECD (2008). Agricultural Outlook 2008-2017
DEFRA (2008). The impact of biofuels on commodity prices
Farm Foundation (2008). What's driving food prices?
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eBIO (2008). The truth about food anf fuel
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EU (2008). Tackling the challenge of rising food prices: Directions for EU action
SWISSAID (2008). Agrofuels are a threat to food sovereignty
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ActionAid (2008). Food, farmers and fuel: Balancing global grain and energy policies with sustainable land use
USDA (2008). Factors contributing to the recent increase in food commodity prices
RFA (2008). The Gallagher Review of the indirect effects of biofuels production
LEI (2008). Why are current world food prices so high?
JRC (2008). Biofuels in the European Union: Facts and uncertainties