FOOD VS. FUEL Impacts of energy price increases on developing countries and the poor

FOOD VS. FUEL
Impacts of energy price
increases on developing
countries and the poor

Dr. Joachim von Braun
Director General
International Food policy Research Institute

Zurich
April, 2007

Overview
• The emerging biofuel economy, why now?

• What are the impacts on food prices and the
poor?

• What are the tradeoffs between food and fuel?
What are the opportunities, risks, challenges?

• Policy suggestions for creating a pro-poor
sustainable biofuel industry

• Conclusions

Joachim von Braun, IFPRI, April 2007

Energy Outlook

• Global consumption of marketed energy is
projected to rise by 71 percent between
2003 and 2030, with 3/4th of the increase
coming for developing countries

• Oil prices unlikely to fall in the future due to
increased demand + recent instability in
some major oil producing countries

• Biofuels have become competitive with
petroleum in many developing countries

The Emerging Biofuel Economy

• Potential to serve as an environmentally
sustainable source of energy
New sources are cleaner and more efficient
Can contribute to mitigating global climate
change

• However, competitiveness of biofuels
depends heavily on relative prices of oil
and agricultural feedstock for biofuels


Food Production and Price Trends

Source: Msangi et al., 2007


Food and Energy Price Trends

Price Indices 2000=100

300 Food
250 Crude Oil
200
150
100
50
0
04

05

06
4

5

6
4

5

6

7
4

5

6
00

00

00

00
00

00

00
00

00

00
l20

l20

l20
n2

n2

n2

n2
ct2

ct2

ct2
r2

r2

r2
Ju

Ju

Ju
Ap

Ap

Ap
Ja

Ja

Ja

Ja
O

O

O
Data Source: UNCTAD Commodity Price Statistics Database


Food and Energy Price Trends

Price Indices 2000=100

300
Corn US
250 Wheat US
200 Crude Oil
150

100

50

0
Mar2004
May2004

Mar2005

Mar2006
Jul2004

May2005
Jul2005

May2006
Jul2006
Nov2004

Nov2005

Nov2006
Jan2004

Jan2005

Jan2006

Jan2007
Sep2004

Sep2005

Sep2006
Data Source: UNCTAD Commodity Price Statistics Database


How Do Prices Correlate? Are there
Inconsistencies?
• Many markets linked to bioenergy markets  change in
price in one market affect can affect prices in ALL other
marketsa

Soybean
Corn Wheat meal Soybeans Soybean oil
Petroleum US India Germany US Netherlands
Petroleum 1.00
Corn US -0.06 1.00
Wheat India 0.51 -0.23 1.00
Soybean Meal
Germany -0.33 0.68 -0.71 1.00
Soybeans US -0.18 0.80 -0.56 0.82 1.00
Soybean Oil
Netherlands 0.49 0.01 -0.14 -0.02 0.30 1.00

Data Sources: IMF Commodity, UNCTAD Commodity Price Statistics, and USDA Feed Grain Databases; and Indiastat.com
aBullock and Goldsmith, 2006


IMPACT Model

• Methodology for analyzing alternative scenarios for
global food demand, supply, and trade

• Covers 36 countries and regions + 16 commodities

• Generates projections for crop area; yield; production;
demand by food, feed, prices; trade etc.

• Base year for simulations: 1997

• Key relevant parameters: price and income elasticities
of demand; price elasticities of area and yield; and
growth rates of population, income, crop area, yield etc.


Scenarios

• Comparison of 3 scenarios to ‗baseline projections‘
(which have current biofuel demand embedded)

• Scenario 1 - a “conventional” scenario with rapid global
growth in biofuel production under conventional
conversion technologies [3%->20% by 2020]
• Scenario 2 - considers the „softening‟ of demand on food
crops due to “2nd generation” cellulosic technologies
coming online
• Scenario 3 - adds productivity improvements [2-7%] to
show how the impacts can be further mitigated (“2nd
generation plus”)


Price Impacts Across Scenarios
Global Commodity Price Changes in 2020
160

140 135
% difference from baseline

120

100 89
76
80
66
60 54
41 45 49 43 43
40 30 29
21 23
16
20

0
Conventional 2nd Generation 2nd Generation Plus

Cassava Maize Oilseeds Sugarcane Wheat



% Changes in World Feedstock Crop Prices
under Scenarios, Compared with Baseline
Aggressive biofuel
Aggressive biofuel growth scenario
Cellulosic
growth scenario with productivity
biofuel
without technology change as well as
scenario
improvementsa cellulosic
conversion

Feedstock crop 2010 2020 2020 2020

Cassava 33 135 89 54
Maize 20 41 29 23
Oilseeds 26 76 45 43
Sugar beets 7 25 14 10
Sugarcane 26 66 49 43
Wheat 11 30 21 16
aAssumptions based on stated plans for biofuel production in Brazil, China, Europe, India, and the US, and on a scenario of aggressive biofuel growth in Africa
Source: von Braun and Pachauri, 2006


Implications for Food Security: Caloric
Availability Across Scenarios

2020 Base 2020 Conventional
2020 2nd Generation 2020 2nd Generation Plus
kilocalorie availability/

4000
3500
per cap per day

3000
2500
2000
1500
1000
500
0
S Asia SE E Asia SSA LAC WANA
Asia


Implications for Food Security: Childhood
Malnutrition Across Scenarios

S Asia SE Asia E Asia SSA WANA LAC

180
160
140
million children

120
100
80
60
40
20
0
1997 2020 Base 2020 2020 2nd 2020 2nd
Convent. Gen Gen +



Summarizing...

• BOTTOM LINE: Energy crop production
does not need to lead to food insecurity

• Why?
- Opportunities for small farmers

- BUT, ―food vs. fuel tradeoff‖ exists


The Food vs. Fuel Tradeoff
• Low crop productivity innovations and technology
investments

• Reliance on conventional feedstock conversion
technologies

• Increased food prices
- Winners: Farmers with net surplus of food
- Losers: Poor consumers and food deficit farmers

• Limited natural resource base  Possible diversion of
land and water away from production of food + feed

Opportunities

• Y effect: Energy crops have to potential to provide
farmers with an important source of product
demand  Increased income for small farmers

• Employment effect: Biofuel production is labor
intensive and may be a boon to rural areas with
abundant labor

• Productivity effect:
- crop residues e.g. stalks which can be converted
into ethanol
- Farmers can grow energy crops on degraded
land not suitable for food production


Challenges

• Biofuels not necessarily better for the
environment

• Can lead to deforestation, loss of
biodiversity, excessive use of fertilizer +
pesticides, land degradation etc.

• May exacerbate socioeconomic inequalities


Strategies to Reduce Trade-offs

• Breed crops that yield high amounts of
energy per hectare or unit of water

• Focus on food crops that generate by-
products that can be used for bioenergy

• Grow biomass on marginal rather than
prime agricultural areas

• Invest in technologies that increase
efficiency and productivity in biofuel
production + processing


Minimizing Risks…

• Improve access to finance + sound policies
for contract security

• Provide access to information on benefits of
biofuel production + infrastructure

• Provide research + extension services

• Design + management of biofuel projects
must be participatory


Stakeholder Responsibilities

• Public sector
Politics of bioenergy can be complexa
 Can help overcome high initial costs +
vested interests - ag and industry
lobbyists

Trade + regulatory systems
 Reduce trade distortions

aBullock and Goldsmith, 2006



Enhance market incentives to realize
environmental + social benefits
 E.g. develop and promote markets for
carbon payments

 What is the role of CO2 trading?
 partly complementary
 partly competitive



• Research
- Public/Private partnerships (e.g. appropriate
scales for biomass production + processing)

• Private Sector
- More long-term investments + commitments


Conclusions

• Impacts of global biofuel development and growth
on the poor can be both positive and negative –
needs careful assessment

• Not necessarily a ‗crowding-out‘ effect – there‘s
room for complementarities and synergy- in R&D

• Rural agricultural development and socioeconomic
growth can go hand-in-hand with enhancement of
bioenergy production capacity

• Current growth in biofuels is dependent on supply
and demand policies—subsidy requirements might
be large if demand increases rapidly



FOOD VS. FUEL Impacts of energy price increases on developing countries and the poor

Recomendados

Recomendados

Mais conteúdo relacionado

Mais procurados

Mais procurados (15)

Destaque

Destaque (9)

Mais de Joachim von Braun

Mais de Joachim von Braun (20)

Último

Último (20)

FOOD VS. FUEL Impacts of energy price increases on developing countries and the poor