Ethanol industry hits back over food price claims


Europe's biofuel producers are hitting back at claims that they are at fault for this summer’s high food prices and challenge assertions that crops grown for fuel production are a threat to food supplies.

Food prices rose 6% overall last month, driven by a devastating drought in the United States and rising petrol costs that make production and distribution more costly. The UN Food and Agriculture Organisation (FAO) reported that maize prices soared 23%, wheat was up 19% and sugar 12% compared to June.

At the urging of France, heads of the Agricultural Market Information System met yesterday (27 August) to discuss whether to call a special session of the Rapid Response Forum, set up by the G20 countries last year to improve coordination among governments as well as the European Commission.

Many factors at play

Factors other than the growing demand for biofuels in Europe and the United States are at play in the higher costs of food, says Rob Vierhout, secretary-general of the European Renewable Ethanol Association, or ePure. He sees commodities speculation, food waste and growing appetites in emerging markets as bigger factors.

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

An export ban like the one Russia imposed during its own damaging drought two years ago “immediately inflates the price,” Vierhout said. “And you can give more examples. We have seen hugely volatile prices with rice whereas rice is not used for biofuels.”

Vierhout blamed some campaign groups and journalists for linking biofuels to higher food costs, saying there’s another side to the story: higher prices encourage farmers to be more productive and drive innovation in crop use. The biofuel market also cuts waste in agriculture by turning plant residue into fuel and reduces excess capacity.

“I don’t read anything about that,” Vierhout said. Campaigners, he continued, claim “that we are taking away food out of the market and don’t give anything in return. It’s simply not true.”

FAO, World Bank cautious about biofuels

But the industry’s interpretation is far from universal. The United Nation's Food and Agriculture Organisation (FAO) last month 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. US livestock producers also called for a suspension of the biofuel policy over feed supply concerns.

In recent years, the World Bank has grown more cautious in its support for biofuel development amid concerns about food and feed supply volatility, with one World Bank agro-economist arguing that EU and US biofuel policies “were the most important factor” in a 2008 food price spike.

“Without these increases, global wheat and maize stocks would not have declined appreciably, oilseed prices would not have tripled, and price increases due to other factors, such as droughts, would have been more moderate,” Donald Mitchell, at the time a World Bank economist, wrote in a report on food prices.

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

Disputes within the European Commission have failed so far to produce agreement on guidelines for addressing the land-use impact of biofuel.

Pressure on EU to drop 2020 biofuels target

Citing the potential of both environmental and food impacts, Oxfam and other poverty-fighting groups have called for European policymakers to reconsider their support for biofuel. Campaign groups fear the impact could grow if the aviation industry sticks to its plans for biofuel to comprise 30% of its fuel supply by 2030.

Bettina Kretschmer of the Institute for European Environmental Policy is an author of a recent report that calls for the EU to rethink its target of 10% renewable energy use in ground transport by 2020 in part because of the long-term impact of food costs.

Kretschmer acknowledged that biofuels alone will not lead to higher prices, but “it is clear that there is an impact,” she told EURACTIV. “We would encourage reconsideration of the design of the target,” she said of the EU’s 2020 goals, with a stronger focus on improving automotive efficiency, electric vehicles and biofuel derived from waste residue.

The IEEP study, prepared for the ActionAid anti-proverty group, shows the largest price impact on oilseeds and vegetable oils that are refined for biodiesel, with less impact on wheat and maize used to produce ethanol. The report forecasts:

  • Prices for oilseeds rising between 8% and 20% and vegetable oils between 5% and 36% by 2020. These oils are derived from rapeseed and soy plants, as well as non-food plants such as jatropha.
  • Wheat prices rising between 1% and 13% and maize 1% to 22. Grains are mainly used to produce ethanol petrol.
  • Sugar cane and beat rising between 1% and 21% over the next eight years. These are also used for ethanol.

Biodiesel accounted for 72% of biofuel consumption in the EU last year and 74.4% of Europe’s production, the report says. Though ethanol demand is expected to rise in the EU, it is the dominant biofuel in the US market.

Vierhout, the ePure chief, doesn’t deny the price impact of higher demand for commodities – those that go into stomachs as well as fuel tanks. He sees many factors driving up demand – and prices – including changing social patterns and income growth in emerging economies.

“Everyone knows that demand for commodities is growing. Sure, I agree, biofuel is one reason why demand is growing. But the real drive for higher demand is that lots of people in Asia are changing their dietary habits and they all want to eat all of a sudden,” Vierhout said.

Speaking of the higher cost of food, Rob Vierhout, secretary-general of the European Renewable Ethanol Association (ePure), said it "has a positive effect for developing countries because if prices are higher, farmers tend to produce not just for their own stomachs, but for the stomachs of the people around them.

"I think it will be an incentive for them to produce more. We certainly do not want what we did in the past for a very, very long time in time, sending cereals or meat to developing countries which takes away the incentive for those countries to grow their own foodstuffs. In that sense you could say, what we are doing in Europe as ethanol producers, we are taking out of the market surplus grain that maybe otherwise would go to countries that would undermine their own agriculture.”

Clare Coffey, of the charity group ActionAid, said in a recent commentary: "Most experts are now agreed that the expansion of land devoted to raising crops used in biofuel production has been a significant factor in high and volatile food prices over the last six years. The equation is clear: the land and other resources once used to grow crops for food is now being diverted to growing crops for biofuel production. Indeed in many cases the crops are the same – but demand for biofuels, spurred by regulations in Europe and North America, means the crops can be sold more profitably for fuel than for food."

'Indirect land-use change' (ILUC) means that if you take a field of grain and switch the crop to biofuel, somebody somewhere will go hungry unless those missing tonnes of grain are grown elsewhere.

Economics often dictates that the crops to make up the shortfall come from tropical zones, and so encourage farmers to carve out new land from forests. Burning forests to clear that land can pump vast quantities of climate-warming emission into the  atmosphere, enough in theory to cancel out any of the benefits that biofuels were meant to bring.

The European Commission has run 15 studies on different biofuel crops, which on average conclude that over the next decade Europe's biofuels policies might have an indirect impact equal to 4.5 million hectares of land – an area the size of Denmark.

Some in the biofuels industry argue that the Commission's science is flawed and that the issue could be tackled by a major overhaul of agricultural strategy to improve productivity or by pressing abandoned farmland back into action. Waste products from biofuels production can also be fed to animals, they say, so reducing the pressure on land resources.

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