Competing interests - food or fuel?

Global food prices are soaring, and consumers across the developing world are bearing the brunt.

What is driving this dramatic turn of events? Myriad forces are at play today, ranging from rising incomes and surging demand for high-value foods, such as meat and vegetables, to burgeoning urbanisation and the mounting impacts of biofuel production and production shortfalls due to weather shocks.

Significant new economic growth in Africa and Asia since 2000 has driven new demand, while there has been a long-term decline in growth in productivity-enhancing investments in agricultural technology, and stagnant marketing and distribution infrastructure in much of the developing world. Around the globe, these forces are transforming all aspects of the global food market, from the farm to the table.

At the same time, global agricultural production and food reserves are at historic lows, further contributing to high food prices. According to the Food and Agricultural Organization of the United Nation (FAO), global cereal stocks, especially wheat, were at their lowest levels in 2006 since the early 1980s.

Together, these factors hold real-life implications for the world’s consumers, especially the very poorest. Two of these factors, in particular - biofuel production and climate change - present unprecedented challenges that will greatly shape the world’s food situation in the future.

Biofuel production

As biofuel production increases to meet demands for alternative sources of energy, it is contributing to dramatic changes in global food markets. To put these changes in perspective, consider the following statistic by the FAO: since 2000, cereal use for food and feed increased by 4 and 7 per cent, respectively, while the use of cereals for industrial purposes increased by more than 25 per cent. In the US alone, according to the Earth Policy Institute, the use of maize for ethanol production increased by 250 per cent between 2000 and 2006.

Although biofuels are seen as an antidote to rising carbon emissions, they also have their drawbacks. Biofuels can adversely affect poor people in developing countries, increasing both the price and price volatility of food. Additionally, government policies that subsidise biofuel production act as a tax on basic food items, directly hurting poor households.

To highlight the potential impact of biofuel production on food prices, IFPRI has modeled the possible price effects of biofuels for two potential scenarios up to the year 2020. In the first scenario, the existing biofuel investment plans of many countries are implemented, and high-potential countries without plans expand their production of bioenergy. In the second scenario, biofuel production is expanded to twice the level of scenario one. By 2020, maize prices would increase by 26 per cent and oilseed prices would rise by 18 per cent under the first scenario compared to a baseline scenario, and maize and oilseeds would rise by a dramatic 72 per cent and 44 per cent, respectively, under scenario two.

Farmers in developing countries who produce significant surpluses for the market can benefit from these higher prices. However, on balance, the impact of high prices on the poor has been negative. Because poor people spend about 50-70 per cent of their incomes on food, higher crop prices would cause them to shift to even less-balanced diets, leading to adverse health effects in the short and long run. Sub-Saharan Africa would suffer the most, with calorie availability projected to drop by more than 8 per cent if biofuels expand drastically.

Biofuels can also adversely affect the environment, despite offering a more carbon emission-friendly alternative to fossil fuels. Without proper management and regulation, biofuel production can lead to deforestation, loss of biodiversity, and excessive use of fertilisers and pesticides, which ultimately degrade the very land and water that poor people depend on for their livelihoods.

New technologies that convert cellulosic biomass to liquid fuels offer added value by both utilising waste biomass and by using fewer land resources. Such second-generation technologies, however, are still in development, and third-generation technologies, such as hydrogene, are at a nascent stage.

Competition between food and fuel will persist in the foreseeable future. Greater investment in food and agricultural science and technologies can help balance the trade-offs between the two and mitigate the impact of higher food prices on poor consumers while generating new streams of income for rural areas. For many developing countries, second-generation technologies may offer the most appropriate way to reap the benefits of bioenergy.