The Perfect Balance? Biofuels vs Food Prices.

Biofuels are transportation fuels, made from biomass materials such as agricultural, animal, industrial, forest, solid waste, and sewage. It is a renewable form of energy.

Since the 20th century, concerns regarding climate change, increasing oil prices have brought our attention towards finding efficient renewable fuel sources. Some developed countries like Norway, Iceland, Sweden, Netherlands have considered switching to plug-in electric vehicles. There has been a surge in the production of biofuels in Europe and the US since the early 2000s. Biofuels can be a far better option for many developing countries, as switching to plug-in electric vehicles from already existing fleet of combustion engine run vehicles isn’t plausible in the near future. Biofuels are a practical option, Brazil is already working with E85 (85% ethanol blending) fuel, initially starting with E22 after the federal law was passed in 1993. But fears are that increased usage of crops for producing Biofuels, will in turn increase the domestic food prices and will affect the poor.

WWF, in its statement once said that it only supports biofuel production from waste or residue instead of crops. Even that can lead to an additional increase in food inflation in meat, dairy and poultry industries.

The effect of higher food prices on inequality will vary from country to country depending upon socio-economic structures and the national net trade position. In countries like Thailand, where land is relatively abundant, or in China, where land distribution is relatively equal, higher food prices may actually help to reduce poverty to some extent. Thailand is also a large net exporter of many commodities, reinforcing this positive effect of higher food prices. But in many other countries, such as Bangladesh, India, Indonesia, and the Philippines, there are many landless agricultural laborers, land distribution is much more unequal and those at the bottom of the income distribution buy more food than they produce the effects of higher food prices might worsen poverty. The rate and speed at which higher crop prices are translated to higher food prices will vary by food product. Higher farm prices may be quickly transmitted to consumers in some food products, but can take multiple years for the full impact to work through the food marketing system. The sector that may bear the largest adverse impacts in the short run is the animal production sector if higher feed prices cannot be immediately passed to food consumers.

In the longer run, food will be able to compete successfully with the use of crops for fuel, but probably with somewhat higher food prices and greater costs to food consumers. Not all food items will be affected in the same manner. Some adjustments are likely in where food is produced around the globe and even in the mix of foods consumers eat.

The shortfall in one region may be offset by improved production in another area.

Most important is that governments renew their efforts to develop well-functioning markets and improve rural education, health services, infrastructure, and agricultural research. These public goods are necessary to realize the full potential for higher productivity that can lead to sustainable poverty alleviation and counteract the negative effects of higher food prices on food security.

The Ultimate goal for world agriculture is to find a balance between how much of our crop production can be used for fuels and how much is needed to maintain an adequate supply of food at acceptable prices.

It all depends on the ability of the world’s crop producers to expand output advances in energy and biofuel technology, energy policies around the globe and the level of growth of the world economy.