OECD agriculture official urges end to biofuel mandates

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Biofuel mandates like those in the European Union and Unites States should be abolished to ease pressure on food prices, a top Organisation for Economic Co-operation and Development official said yesterday (19 September). Meanwhile, industrialists condemned the European Commission's proposal to limit biofuels, calling it "a masterpiece of irresponsible policymaking".

Carmel Cahill, senior counsellor in the OECD’s Trade and Agriculture directorate, said the demand for biofuel is a leading factor in tighter markets for the main commodity crops, including wheat and maize, which are also used to produce fuel.

“In the long term we think mandates are really a bad policy,” Cahill told journalists, referring to both EU and US programmes aimed boosting alternatives to fossil fuels. She also said growing populations and income in emerging economies were a main factor in food price rises.

The impact of biofuels on food prices, Cahill said, “has been very big, because what we’ve seen is that under the influence of policy-driven … mandates, the demand for biofuels rose very, very fast over a relatively short period, so the supply capacities have had trouble keeping up.”

The UN Food and Agriculture Organisation (FAO) reported that maize prices in July soared 23%, wheat was up 19% and sugar 12% compared to June. Prices were mostly unchanged in August.

Commission vows 5% limits on biofuel

Cahill’s comments on biofuels came two days after EU Climate Commissioner Connie Hedegaard and Energy Commissioner Günther Oettinger vowed to limit crop-based biofuels to 5% of total energy consumption.

"It is wrong to believe that we are pushing food-based biofuels. In our upcoming proposal for new legislation, we do exactly the contrary: we limit them to the current consumption level, that is 5% up to 2020," the commissioners said in a joint statement.

Europe’s leading ethanol, biodiesel and farming groups called the commissioners’ proposal “a masterpiece of irresponsible policymaking.”

“No more than 3 years after the EU’s commitment to reducing [greenhouse gas] emissions, enhancing energy independence and to create sustainable growth and jobs the Commission effectively wipes out a nascent industry that arose as a response to the European climate and energy policy,” the groups said in a joint statement. “The same industry that made considerable efforts to comply with the most stringent global sustainability criteria imposed upon it as a result of the biofuel policy.”

Farm support declining

Cahill spoke in Brussels as the OECD released a report on agricultural policy. The report shows that while farm support schemes and trade barriers remain, they have been on the gradual decline in both the EU and leading farm producers since the 1980s – and especially in the past decade.

In the EU, direct payments to growers account for 20% of gross farm income in 2011, well below Norway (60%), Japan (51%) and Iceland (47%), but marginally above the OECD average – 19% – and is likely to to shrink with EU institutions under the gun to cut the bloc’s 2014-2020 budget. The €182 billion in support to producers in the 34 OECD countries last year was a record low.

Launched in 1962, the Common Agricultural Policy (CAP) is a system of EU agricultural subsidies and programmes that marks one of the biggest single spending items for the EU.

Discussions on the future CAP are on hold pending agreement on the EU’s 2014-2020 budget, known as the multi-annual financial framework or MFF. Earlier plans for spending €435.6 billion on agriculture – of which €317.2 billion would fund direct payments to farmers under Pillar 1 of the CAP – now seem uncertain.

Sofoclis Aletraris, the Cypriot agriculture minister whose country holds the rotating EU presidency, says there is likely to be little headway on specifics in the CAP – including proposals to make farming more environmentally friendly – until the EU’s long-term budget needs are decided.

“A lot of members of the European Parliament, or even some member states in the Council, do not want to commit themselves unless the MFF is completed,” Aletraris told EURACTIV in an interview. “The Parliament made it quite clear that we shall not proceed and agree on anything unless we know the outcome of the MFF discussions.

Trade barriers are “a short-term view and never lead to a good allocation of resources in [national] economies, so at the end the total welfare may be diminishing rather than increasing,” said Vaclav VojtechOECD agricultural policy analyst, adding that today’s higher prices are an opportunity for further market liberalisation.

Rob Vierhout, secretary-general of the European Renewable Ethanol Association, or ePure, told EURACTIV in a recent interview that commodities speculation, food waste, droughts, and growing appetites in emerging markets are the main factors for higher food costs.

“You cannot present a convincing case that biofuels are structurally causing higher food prices,” Vierhout said. “We have had problems with [volatility] for decades and even in the time when biofuels were absolutely not around.”

Use of biodiesel - dominant in Europe, while ethanol prevails in the United States - is expected to double by 2020 to 19.95 million tonnes of oil equivalent (mtoe) from around 10 mtoe in 2010.

The EU already has enough refining capacity at more than 22 million tonnes to cope with the projected doubling in biodiesel demand, according to Rabobank, a Dutch financial services company.

But it faces daunting challenges in coming up with the investment and technology needed to move to feedstock, such as weeds, grass and waste stems, leaves and husks, that would take the pressure off grain supplies for food.

It also needs to find inputs that would no longer result in the clearing of environmentally-sensitive forests and wetlands to plant fuel crops, an issue known as indirect land use change (ILUC).

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