Biofuels and food security: risks and opportunities

Aug 2013

This comprehensive overview of the main aspects of the interrelation between food and biofuels synthesizes previous research on the subject. It addresses the causality between biofuels production, global crop commodity prices and eventual implications for food security, especially in poor regions and for poor households. This overview attempts to bring together the relevant economic forces influencing global (and local) food prices, many of which are absent in other analyses. Thus, it addresses low stock level impacts on price volatility, how cheap food encourages waste, to what extent global prices transmit to local prices across regions, and why high prices encourage local agricultural investment and food security.
The report's analysis leads to the following conclusions:
• 2010 crop production was enough to feed 12 billion people and the world can produce more;
• Hunger and poverty have steadily decreased over the past few decades;
• Local hunger is primarily caused by yield gaps, food waste, poor infrastructure, lack of
agricultural investments, lack of local market organisation, conflicts and bad harvests, not by reduced exports from developed countries;
• Biofuels can help to reduce food price volatility in the EU and in developing economies;
• Higher food and commodity prices can improve food security, especially in developing countries;
• It is uncertain whether EU ethanol raises or lowers the overall price of food. EU ethanol has had small impacts on global starch and sugar feedstock prices; the historic impact of EU biofuels demand until 2010 increased world grain prices by about 1-2% and, without any cap on crop based biofuel production may lead to another 1% increase through 2020;
• EU historical biodiesel demand for the same period likely increased oilseed prices by around 4% and, without any cap, may increase future prices by around 10%;
• The prices of primary global agricultural commodities (from which biofuels are produced) are not directly correlated to food prices, both because local food markets are often disconnected from global markets and also because commodity costs are often only a small component of final food production costs. The terms “primary agricultural commodities” and “food” are not fungible;
• Protein rich co-products from ethanol and biodiesel production avoid land use elsewhere;
• Agricultural commodity prices are strongly linked to the oil price. Biofuels could reduce oil price increases and as such limit future commodity price increases;
• In no case are biofuels the largest market for globally traded agricultural commodities. For starch feedstocks, the global trade is driven by animal feed demand, with human and biofuel demand each under 5%. The global trade in sugar feedstock is driven by sugar; biofuels are the second largest driver, albeit mostly at national levels. For oilseeds, the global trade is driven primarily by animal feed demand, secondarily by human food markets and only thirdly by biodiesel;
• Systemic factors, like reduced reserves, food waste, speculation, transportation issues, storage costs and problems, and hoarding play a much larger role in local food prices. These factors can be solved and should get much more attention.

By: C. Hamelinck

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