FAO report links high food prices to biofuel demand

FAO Director-General José Graziano da Silva.jpg .jpg

Biofuels account for the largest source of new demand for agricultural production and have helped drive price volatility in grain crops like wheat and maize, the UN Food and Agricultural Organization says in a new report.

Biodiesel accounted for 80% of the EU’s vegetable oil production while 37% of the grain crop in the United States went towards ethanol production, the FAO’s ‘State of Food and Agriculture 2012’ report shows.

The report, released Thursday (6 December), calls for ramping up agricultural investment in developing nations to provide jobs and reduce poverty. It points out that average farm production has declined since the 1960s and that threats to land and water could further erase gains.

Droughts that hurt production in southern Europe and devastated the US corn output this summer triggered calls for the United States and European Union to suspend all biofuel mandates.

Prolonged dry spells have threatened parts of China, Russia, Australia, France, Spain, Portugal and the southern United States in recent years – affecting crop output but also leading to frenetic food pricing.

Balancing act

The FAO’s report advocates a balance between improving farm output to meet rising food demand and to prevent price shocks, while also ensuring environmental sustainability.

“Policies in domains such as biofuel production, food self-sufficiency and international trade may have unintended adverse environmental consequences, which should be carefully evaluated. It also requires that public investment is directed towards enhancing production in ways that are environmentally sustainable and socially beneficial,” the report says.

The UN agency attributes growing volatility in farm commodity prices to population growth as well as “higher per capita incomes, urban migration and associated changing diets in developing countries, weather-related production shocks, trade policy shocks and rising demand for biofuel feedstocks.”

Oils produced from wheat, corn, sugar beet, soy and other farm crops are known as first-generation biofuels and their use has become more controversial despite broad public policy support in Europe and America. But non-food alternatives like palm and jatropha are also under fire on the grounds that the land-clearing, production and water use that goes into producing the crops – often in developing countries – yields little or no environmental benefit.

Food prices in 2012 drifted downward from the peaks of 2008 and 2011, but rose during the summer when cereal crops in the United States and parts of Europe failed because of high temperatures and drought. The FAO’s December food price index was at its lowest point since June, although dairy prices rose partly due to tighter feed supplies.

Calls to end mandates

The summer drought that affected three-quarters of the US corn crop and 85% of the main maize-producing region prompted calls for Washington and Brussels to rethink their mandates. FAO Director-General José Graziano da Silva urged Washington to suspend its production targets for ethanol. Olivier De Schutter, the UN food rights rapportuer, has also urged the EU to abandon its biofuel targets for road transport set out in the 2006 Renewable Energy Roadmap.

In October, the European Commission called for halving its target of 10% biofuel use in transport by 2020.

But US Environmental Protection Agency rejected such calls, saying it found no evidence that removing the mandate would lead to significantly lower commodity prices, a decision welcomed by the ethanol and biodiesel industries on both sides of the Atlantic.

Development experts call for more focus on farming to create jobs, feed growing populations, while also providing lucrative exports in poor regions like Sub-Saharan Africa, where nearly half of the more than 800 million people live below the UN’s poverty line of less than $1.25 per day. Globally, some 870 million people – nearly one in seven earthlings – don’t have enough to eat, the UN says.

A newly published United Nations Human Development Report on Africa, which focuses on food security, also cites crop failure and low productivity, scare fertilisers and rudimentary irrigation practices as leading factors in food shortages in Sub-Saharan Africa.

Investment is 'key issue'

“Investment in agriculture is the key issue to achieve food security and development. We are seeing today high-level food prices, very volatile food prices and this has been affecting the poorest countries all around the world,” the FAO’s da Silva told a news conference in Rome on Thursday.

“Our publication this year shows very clearly that country where farmers and governments have invested in agriculture are seeing a more rapid progress to meet the Millennium Development Goals, especially those related to poverty and hunger.” The 2000 millennium goals set out eight poverty-fighting goals, including halving the number of malnourished people by 2015

But many countries are lagging behind and overall food production is stagnating. The average annual growth in agricultural production declined in 2001-2010 from the post-war boom years of the 1960s, from 2.7% to 2.6%, the FAO’s new report shows.

Biofuel industry groups in Europe and the United States contend that commodities speculation and high fossil fuel prices have had more impact on supermarket prices than biofuel production.

Their assessment was backed up last month when the US Environmental Protection Agency turned down a request by eight state governments to suspend the federal ethanol mandate due to high prices of food and animal feed, saying there was no evidence that fuel crops were driving food prices.

But such interpretations aren’t universal. The UN’s Food and Agriculture Organization (FAO) this summer urged the United States to suspend its mandate for producing biofuel to relieve pressure on maize crops amid the nation’s worst drought in 50 years.

The World Bank also has grown more cautious in its support for biofuel development, with one World Bank agro-economist arguing in a report on food prices that EU and US biofuel policies “were the most important factor” in the 2008 price spike.

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