/ 1 June 2011

Global food crisis: Counting the real cost of biofuels

A perfect storm of factors has driven the rates of inflation and volatility in food markets, but biofuels have been the game changer.

This year, 40% of the United States’s corn crop will go into car engines rather than stomachs. Add the fact that the US is both the world’s largest producer of corn and the largest exporter, and that 10 years ago only 7% of its corn went to ethanol production, and you start to see why the sudden enthusiasm for biofuels among oil importers has had such a marked impact on food prices.

Of course, a perfect storm of other factors besides biofuels has also driven the breathtaking rates of inflation and volatility seen in food markets over the last few years — among them rising global population, millions more people shifting to Western diets, declining rates of crop yield growth, years of under-investment, extreme weather, high oil prices increasing the cost of inputs like fertiliser, low stock levels, and kneejerk actions by governments such as food export bans and panic buying by importers.

But it’s biofuels that have been the real game changer. As the IMF observed in 2008, while biofuels accounted for just 1.5% of global liquid fuels supply that year, they represented nearly half the increase in major food crop consumption, mainly because of corn-based ethanol in the US.

And while they only accounted for a small fraction of liquid fuels, the fact that they represented 75% of the net increase in non-Opec liquid fuels in 2008 goes a long way towards explaining why oil importers have taken to them with such enthusiasm.

Unfortunately, that’s scant comfort to the billion or so poor people who don’t get enough to eat — they have seen food prices rise still further out of reach as a result of biofuel support policies. But are the tides finally turning against corn-based ethanol and other inefficient “first generation” biofuels?

At first glance, it might look like wishful thinking. The US farm lobby, never shy in pushing for its interests, has taken to ethanol with a passion. And with presidential elections looming, the Obama administration has been careful not to offend agribusiness: a major speech on food security by the US Secretary of State, Hillary Clinton, this month was notable for failing to mention the words “ethanol” or “biofuels” even once. The EU, too, looks in no mood to rethink its target of obtaining 10% of transport fuels from biofuel by 2020.

But look again, and four factors suggest that change could be in the air.

First, the G8 countries, with five emerging economies and 13 international organisations, have just agreed new guidelines for producing biofuels in ways that don’t add to climate change or affect food prices. True, the Global Bioenergy Partnership is only voluntary and doesn’t define standards or thresholds. But it still represents a tacit admission by governments that there’s a problem, and that some fuels are less sustainable than others.

The politics of ethanol
Second, there are also signs of movement in the G20. A report on food price volatility prepared for the G20 by 10 international agencies, including the IMF, the World Bank, the World Trade Organisation and sections of the UN, and leaked this month, was blunt about what needed to be done on biofuels. It said: “G20 governments [should] remove provisions of current national policies that subsidise [or mandate] biofuels production or consumption … failing a removal of support, G20 governments should develop contingency plans to adjust [at least temporarily] policies that stimulate biofuel production or consumption [in particular mandatory obligations] when global markets are under pressure and food supplies are endangered.” And with G20 agriculture ministers meeting in June, the report puts the US, the EU and others firmly on the spot.

Third, the politics of ethanol are shifting on Capitol Hill too. As current ethanol subsidies expire at the end of this year, an action-forcing deadline is in prospect — and with political pressure increasing on cutting government spending, attacks on biofuel subsidies are growing. Senators Tom Coburn and Dianne Feinstein have introduced legislation to end the $0.45 a gallon tax credit to ethanol — and, significantly, pro-ethanol politicians have abandoned trying to defend the status quo, instead trying to secure a gradual phase-out of subsidies rather than a total shut-off.

Fourth, and finally, a growing coalition of NGOs and advocacy groups is taking aim at biofuels. As “pathfinders” such as WWF, ActionAid and Oxfam — whose Grow campaign launches this week — are already showing, issues like biofuels, landgrabs and food prices have the potential to unite development and environment NGOs around an agenda of fair shares for the poor in a world of resource scarcity and environmental limits. No agenda will matter more for development and the world’s poor over the century ahead. – guardian.co.uk