The Global Warming Policy Foundation

CCNet –  20 July 2012
The Climate Policy Network


The Biofuels Disaster


‘Green’ Politicians Cause Another Food Crisis

 


A United Nations expert has condemned the growing use of crops to produce biofuels as a replacement for petrol as a crime against humanity. The UN special rapporteur on the right to food, Jean Ziegler, said he feared biofuels would bring more hunger. The growth in the production of biofuels has helped to push the price of some crops to record levels. It was, he said, a crime against humanity to divert arable land to the production of crops which are then burned for fuel. --Grant Ferrett, BBC News, 27 October 2007
 
 
 
 
The world is running short of corn. That is the message being delivered by the market, where on Thursday prices pushed above $8 a bushel for the first time. With no obvious abundance of international suppliers to make up for the drought-ravaged US corn crop and stocks close to record lows, traders and analysts believe demand must be pegged back.The biggest potential for a reduction in corn demand comes from the ethanol industry, which is using roughly 5bn bushels of corn, or nearly 40 per cent of the US corn crop, each year to make fuel for cars and animal feed. -- Financial Times, 19 July 2012
 
 
 
You would have thought that after the UN referred to biofuels as a "crime against humanity" there might have been at least a pause for thought. It seems, however, that pork barrel politics can win out over pretty much anything and the headlong rush to reduce the supply of food and to increase the supply of ethanol continues unabated. I'm sure that people who can no longer afford a loaf of bread will be much reassured by the fact that the UK government is discussing flexing their biofuels mandates. –Andrew Montford, Bishop Hill, 20 July 2012
 
 
 
 
The combination of scorching temperatures and a lack of rain has now pushed corn and soybean prices above the peaks they reached during the 2007-08 food crisis. Overnight, the corn futures price climbed above $US8 a bushel for the first time, while that of soybeans hit a record $US17.12 a bushel. Already, some analysts are warning that the world could be in for a period of intense social and political instability similar to that seen in 2007-08 when soaring food prices sparked riots in dozens of countries. They note that last year’s political instability in the Arab world was partly caused by surging grain prices. The effect of rising grain prices is most pronounced in poor countries, where people can spend up to three-quarters of their income on food. --Karen Maley, Business Spectator, 20 July 2012
 
 
 
 
The head of the world's largest food producer believes high prices are due to the growing of crops for biofuels. "The time of cheap food prices is over," says Nestle chairman Peter Brabeck-Letmathe. He is highly critical of the rise in the production of bio-diesel, saying this puts pressure on food supplies by using land and water that would otherwise be used to grow crops for human or animal consumption. He says biofuels are only affordable because of the high subsidies they receive, particularly in the US. "It is absolutely unacceptable and cannot be justified," he says. "There is one demand that I have, and that is not to use food for fuel." --James Melik, BBC News, 18 July
 
 
 
 
Demand for biofuels in the US is driving this year's high food prices, a report has said. It predicts that food prices are unlikely to fall back down for another two years. The report, produced by Purdue University economists for the Farm Foundation policy organisation, said US government support for ethanol, including subsidies, had fuelled strong demand for corn over the last five years. --Suzanne Goldenberg, The Guardian, 19 July 2011
 
 

 
The biofuels industry is at loggerheads with House Republicans, who are eyeing its funding for elimination in the farm bill. Biomass and biofuels groups warn that the loss of $800 million in guaranteed federal support would stall progress in developing the fuel source and cause job losses in rural communities that can least afford it. House Republicans say the plans to choke off funding for biofuels and biomass projects reflect the basic fiscal reality that cuts have to come from somewhere. Proponents for biofuels and biomass have faced another unusual roadblock — a coalition of fiscal conservatives and environmentalists who have rallied to stop the funding. Michal Rosenoer, an advocate with Friends of the Earth, said biofuels such as corn-based ethanol have been linked to rising food prices, and argued there’s no guarantee that a shift to more advanced cellulosic-based sources would be better for the environment. --Zack Colman, The Hill, 11 July 2012
 
 
 
Governments should scrap policies to support biofuels because they are forcing up global food prices, according to a report by 10 international agencies including the World Bank and World Trade Organization. The report adds to growing opposition to biofuels targets and subsidies such as those in Europe, Canada, India and the United States. --Reuters, 10 June 2011
 
 
 
A major international report delivered to the G20 group of governments, emphasises that biofuels should not impinge on people’s basic right to food – a central element of the ethical framework developed by the Council in its recent report Biofuels: ethical issues. The G20 report – undertaken by a range of international organisations including the Food and Agriculture Organization of the United Nations, the World Trade Organization and the World Bank – concluded that increases in bioethanol production reduced the supply of food and caused price increases. In an attempt to address this problem, the report urges G20 governments to end national policies that subsidise or mandate biofuel production or consumption. --Nuffield Council on Bioethics, 13 June 2011
   


1) The Biofuels Disaster:  ‘Green’ Politicians Cause Another Food Crisis - Bishop Hill, 20 July 2012

2) Nestle blames biofuels for high food prices - BBC News, 18 July 2012

3) As Food Prices Soar, Markets Brace For A Surge In Political Unrest - Business Spectator, 20 July 2012

4) US Republicans put biofuels on the chopping block - The Hill, 11 July 2012

5) Biofuel demand in US driving higher food prices, says report - The Guardian, 19 July 2011

6) G20 report addresses effect of biofuels on food prices - Nuffield Council on Bioethics, 13 June 2011
 
 

1) The Biofuels Disaster:  ‘Green’ Politicians Cause Another Food Crisis
Bishop Hill, 20 July 2012

Andrew Montford

The drought in America has had predictable knock-on effects on expectations of this year's harvest. There is certainly a sense of panic in the FT's report (H/T RP Jr):

The world is facing a new food crisis as the worst US drought in more than 50 years pushes agricultural commodity prices to record highs.
Corn and soyabean prices surged to record highs on Thursday, surpassing the peaks of the 2007-08 crisis that sparked food riots in more than 30 countries. Wheat prices are not yet at record levels but have rallied more than 50 per cent in five weeks, exceeding prices reached in the wake of Russia’s 2010 export ban.

However, this is only half the story. Vast quantities of corn in the US have to be converted to biofuels by law.

[T]he biggest potential for a reduction in corn demand comes from the ethanol industry, which is using roughly 5bn bushels of corn, or nearly 40 per cent of the US corn crop, each year to make fuel for cars and animal feed.

In essence, the demands of politicians (and farmers) have, once again, turned a food problem into a food crisis.

You would have thought that after the UN referred to biofuels as a "crime against humanity" there might have been at least a pause for thought. It seems, however, that pork barrel politics can win out over pretty much anything and the headlong rush to reduce the supply of food and to increase the supply of ethanol continues unabated.

And it's not just in the US either. The Parliamentary Office of Science and Technology (POST; headed by Lord Oxburgh) recently reported on the use of biofuels in the UK and there is little sign of concern over the contribution of biofuels. Indeed, the report notes that a parliamentary inquiry in 2007/8 determined that biofuel production had little impact on food prices. If the proportion of the US corn crop diverted to ethanol production is indeed 40%, it's hard to imagine how they reached this conclusion.

From the POST report, we learn that the UK government recently published a biofuels strategy. From this, we learn that the Committee on Climate Change has recommended that biofuels targets should be flexible, a suggestion that has met the following response from the government:

We recognise that tensions could exist between bioenergy and food prices. Biofuels mandates that can be temporarily flexed or otherwise relaxed at times of agricultural price pressures have been raised in international fora as possible solutions for reducing the severity of these spikes. We will be undertaking further analysis on the potential merits of this and other mitigating options in the coming months.

I'm sure that people who can no longer afford a loaf of bread will be much reassured by the fact that the UK government is discussing flexing their biofuels mandates.


2) Nestle blames biofuels for high food prices
BBC News, 18 July

James Melik

The head of the world's largest food producer believes high prices are due to the growing of crops for biofuels.

"The time of cheap food prices is over," says Nestle chairman Peter Brabeck-Letmathe.

He is highly critical of the rise in the production of bio-diesel, saying this puts pressure on food supplies by using land and water that would otherwise be used to grow crops for human or animal consumption.

"If no food was used for fuel, the prices would come down again - that is very clear," he says.

"We are now in a new world with a completely different level of food prices because of the direct link with fuel," he says.

He says biofuels are only affordable because of the high subsidies they receive, particularly in the US.

"It is absolutely unacceptable and cannot be justified," he says.

"There is one demand that I have, and that is not to use food for fuel."

 

Water crisis

Mr Brabeck-Letmathe says politicians have not understood that the food market and the oil market are the same - they are both calorific markets.

"The only difference is that with the food market you need 2,500 calories per person per day, whereas in the energy market you need 50,000 calories per person," he says.

When politicians said they wanted to replace 20% of fossil fuels with biofuels, it meant increasing the production of crops threefold, according to Mr Brabeck-Letmathe.

And most of the world's sugar production now goes into making biofuels, he says.

Agriculture uses 70% of world's water consumption and the public must be made aware of the inefficient usage of this precious resource, Mr Brabeck-Letmathe adds.

"It takes about 4,600 litres of water to produce one litre of pure ethane oil if it comes from sugar, and it takes 1,900 litres of water if it comes from palm oil," he says.

"This is not a crisis which might arise in 100 years, it is something which is already here today."

Other factors

Paul Conway, chairman of US food conglomerate Cargill, also strongly opposes mandates for biofuels, but says there are other reasons for high food prices.

"The bigger picture globally is increased urbanisation, which leads to more food being consumed," he says.

A severe drought in the US has led to many farmers having to abandon their 2012 harvest

He also points to the hundreds of millions of people being lifted out of poverty in the decade leading up to the financial crisis, which led to an improved diet and more meat being consumed.

"There has also been an explosion in biofuel use and the financialisation of the agricultural markets," he says.

He says those factors, along with a 20% decline in investment in agriculture, has contributed to higher food prices.

Full story

 
 
3) As Food Prices Soar, Markets Fear Surge In Political Unrest
Business Spectator, 20 July 2012

Karen Maley

Markets are bracing for a surge in global political unrest, as the worst US drought in half a century sent corn and soybean prices soaring to record highs overnight.

The combination of scorching temperatures and a lack of rain has now pushed corn and soybean prices above the peaks they reached during the 2007-08 food crisis. Overnight, the corn futures price climbed above $US8 a bushel for the first time, while that of soybeans hit a record $US17.12 a bushel.

Although the wheat price has not yet hit record highs, it has jumped more than 50 per cent in the past five weeks, and is now above the level it hit after Russia’s crop failure in 2010, which prompted Moscow to impose a ban on grain exports.

Grain traders have been anxiously monitoring the effect of the drought, which is the worst since 1956 in terms of the areas affected. In its weekly crop report, the US government said that only 31 per cent of the corn crop was in “good to excellent condition”, a sharp drop from its estimate of 40 per cent last week. For soybeans, the estimate dropped to 34 per cent from 40 per cent.

But the devastating US drought will have massive global effects. The United States is the world’s largest exporter of corn, soybeans and wheat – supplying around one-third of these staple grains traded on the global market.

Already, some analysts are warning that the world could be in for a period of intense social and political instability similar to that seen in 2007-08 when soaring food prices sparked riots in dozens of countries. They note that last year’s political instability in the Arab world was partly caused by surging grain prices.

The effect of rising grain prices is most pronounced in poor countries, where people can spend up to three-quarters of their income on food. Because food is such an important part of consumer spending, surging food prices are quickly reflected in a jump in official inflation figures.
Major emerging countries such as China, India and Brazil have been cutting interest rates recently in order to buffer their own economies from the drag on growth caused by the continuing European debt crisis and the anemic US recovery.

 

Analysts fret that faced with higher inflation, central banks in emerging countries might hold back from applying stimulus policies, and could even hike interest rates to control rising prices. This would deal a further blow to the moribund global economy.

In particular, they fear that surging soybean prices will quickly be reflected in higher Chinese inflation. Already this year soybean prices have climbed 40 per cent, creating a problem for China, by far the world’s largest importer of soybeans.
 

4) US Republicans put biofuels on the chopping block
The Hill, 11 July 2012
Zack Colman

The biofuels industry is at loggerheads with House Republicans, who are eyeing its funding for elimination in the farm bill.

Biomass and biofuels groups warn that the loss of $800 million in guaranteed federal support would stall progress in developing the fuel source and cause job losses in rural communities that can least afford it.

The industry claims interest groups such as fossil fuel producers and livestock owners have hijacked the process as the House Agriculture Committee begins a markup of the bill this week.

“What is probably more broadly at play is a concerted effort by livestock groups, oil groups and some in the environmental community to denigrate biofuel production,” said Matt Hartwig, a spokesman for the Renewable Fuels Association. “They spend more money. They have a big microphone.”

While the Senate farm bill included mandatory funding of $800 million over five years for energy programs, the House bill offers only discretionary spending on energy programs, while cutting $500 million from the funding level in the 2008 farm bill.

 

House Republicans say the plans to choke off funding for biofuels and biomass projects reflect the basic fiscal reality that cuts have to come from somewhere.

“I think the bottom line is that we had more money when the ’08 farm bill was written than we have today,” said Rep. Glenn Thompson (R-Pa.), the chairman of the House Agriculture subcommittee on Conservation, Energy and Forestry. “Under the House Agriculture Committee’s discussion draft, every program that is eliminated, aside from Repowering Assistance, were one-time studies or programs that were never funded and received no mandatory baseline.”

Biofuel groups are lobbying the committee to restore the funding, but might have a tough time making the case to the GOP members of the House Agriculture Committee. Of the 23 Republicans on the panel, 16 are freshman members who are eager to prove their fiscal bona fides by slashing from the big-spending farm bill.

The funding goes toward a variety of loans and grants for bio-refineries and renewable-energy programs, as well as subsidies for dedicated energy crops.

When the Senate Agriculture panel first rolled out its draft farm bill, it did not contain mandatory funding for the energy programs. A bipartisan group of 11 senators pushed successfully to restore the guaranteed funding stream.

Leaders on the Senate Agriculture Committee argue they’re looking out for the nation’s long-term energy needs by reauthorizing the biofuel funding.  

“To abruptly reduce research, financing options and investment in renewable energy would pull the rug out from burgeoning industries that can drive economic growth and job creation in rural America for decades to come,” said Sen. Sherrod Brown (D-Ohio), the chairman of a Senate Agriculture subcommittee. 

But Thompson said it’s time for the industry to stand on its own two feet. He said the funding in the 2008 farm bill should have been sufficient to drive biofuel and biomass production forward. 

Bruce Dale, a Michigan State University professor who advises on a biomass research program created by the 2008 farm bill, said the House bill “is merely reflecting budget realities.”

“I don’t think that there’s really any reason to think that overall the biofuels, bio-refineries are going to be any less important,” Dale said. “I suppose these are practical and political calculations of what needs to end.”

The Energy Information Administration (EIA) has predicted strong growth for biofuels and biomass companies even without targeted tax incentives.

Between 2010 and 2035, biofuels will expand at an annual 4.6 percent clip, making it the second-fastest-growing energy source in the nation, the EIA projected in its “Annual Energy Outlook 2012” report released last month. Similarly, biomass production will yield the nation’s fastest production increase, at 3.3 percent annual growth.

 
But that study assumes the continuation of policies that would face an uncertain future under the House farm bill, according to Matt Carr, a managing director at the Biotechnology Industry Organization. 

“The House bill contains no mandatory funding for programs, and if history is any guide, we’re not likely to get a lot of appropriations through the appropriations process,” Carr said. “The House bill as it now stands is a serious risk to energy title programs.”

Hartwig of the Renewable Fuels Association said oil and natural-gas interests have waged a “multiyear, multimillion-dollar campaign” against the renewable fuel standard that tipped the scale against biofuels in the House.

The charge against oil, coal and gas interests is familiar, but proponents for biofuels and biomass have faced another unusual roadblock — a coalition of fiscal conservatives and environmentalists who have rallied to stop the funding.

Michal Rosenoer, an advocate with Friends of the Earth, said biofuels such as corn-based ethanol have been linked to rising food prices, and argued there’s no guarantee that a shift to more advanced cellulosic-based sources would be better for the environment. 

“The Obama administration is obviously very interested in propping up the industry,” Rosenoer said. “But the question is: Do we want an alternative to oil, or do we want a sustainable alternative to oil?”
 

5) Biofuel demand in US driving higher food prices, says report
The Guardian, 19 July 2011

Suzanne Goldenberg

Demand for biofuels in the US is driving this year's high food prices, a report has said. It predicts that food prices are unlikely to fall back down for another two years.

The report, produced by Purdue University economists for the Farm Foundation policy organisation, said US government support for ethanol, including subsidies, had fuelled strong demand for corn over the last five years.

A dramatic rise in Chinese imports of soybeans was also putting pressure on prices and supply, the report said.

Since 2005, a growing number of US farmers have switched to corn and soybeans from other crops. Farmers in other countries have also switched to corn but, the report said, the demand kept growing.

"In 2005, we were using about 16m acres [6.4m hectares] to supply all of the ethanol in the United States and Chinese soybean imports," Wallace Tyner, one of the authors said. It took 18.6m hectares (46.5m acres) last year, just to satisfy that demand.

The US department of agriculture reported earlier this month that US ethanol refiners were for the first time consuming more corn than livestock and poultry farmers.

It took 27% of last year's corn crop to meet the demand for corn ethanol. Only about 10% went to make ethanol in 2005, Tyner said.
The Centre for Agricultural and Rural Development at Iowa State University has estimated that 40% of the US corn crop now goes to make ethanol. But Tyner said the cobs and husks of corn used to make ethanol would go on to be used for animal feed.

The other driver of rising food prices was China, which has been building up its soybean reserves since the last big global food price rises of 2008.

But the report focused strongly on a US government mandate for ethanol production and $6bn (£3.7bn) in annual subsidies for ethanol refineries. Others have also been putting the corn ethanol industry in the spotlight.

 

In an interview with the Financial Times, General Mills, which produces Cheerios cereal, Häagen-Dazs ice-cream and other major brands, also blamed ethanol subsidies for driving up food prices. Ken Powell the company's chief executive said the price of corn and oats was up by 30 to 40% over last year.

"We're driving up food prices unnecessarily," Ken Powell, chief executive of General Mills, said in the interview. "If corn prices go up, wheat goes up. It's all linked."

Full story

 

6) G20 report addresses effect of biofuels on food prices
Nuffield Council on Bioethics, 13 June 2011

A major international report delivered to the G20 group of governments, emphasises that biofuels should not impinge on people’s basic right to food – a central element of the ethical framework developed by the Council in its recent report Biofuels: ethical issues.

The G20 report – undertaken by a range of international organisations including the Food and Agriculture Organization of the United Nations, the World Trade Organization and the World Bank – concluded that increases in bioethanol production reduced the supply of food and caused price increases.

Biofuel subsidies and mandates

In an attempt to address this problem, the report urges G20 governments to end national policies that subsidise or mandate biofuel production or consumption. This would include the target set by the UK’s Renewable Transport Fuel Obligation (Amendment) Order 2009 which effectively requires that biofuel should make up 5 percent of transport fuel by 2013. Failing the removal of these policies, the report suggests contingency plans are put in place to adjust such policies, at least temporarily, when global food markets are under pressure.

These recommendations are partly in-line with the recommendation of the Council that current national biofuel targets should be replaced with a more sophisticated target-based strategy that fully accounts for the wider consequences of biofuel production – including threats to food security. Such a strategy should drive biofuel development in a way that is both flexible and responsive, for instance, to emerging food insecurity.

New approaches to biofuels

The G20 report also recommends that scientific research should be accelerated on alternatives to reduce carbon emissions and to improve sustainability and energy security.

The Council similarly recommends that policy makers should incentivise research on new biofuels technologies that need less land and other resources, avoid social and environmental harms, and reduce greenhouse gas emissions. There are big discrepancies between the policies that are in place to promote current biofuels, and the very few incentives for developing new approaches to biofuel production.

The international report was requested by G20 leaders in November 2010 to develop options on how to mitigate and manage better the risks associated with food price volatility, ultimately to protect the most vulnerable.

View the Policy Report Price Volatility in Food and Agricultural Markets: Policy Responses 

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