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Biofuel Production (Background to Biofuel Production (What are they?
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Biofuel Production
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Biofuel-Food Issues (social impacts)
- HH spending on food is generally much higher in poorer countries; e.g. SSA nations @ 40% of total income, whereas EU/US closer to 10% (USDA, 2014)
- Price fluctuations thus disproportionately hit poorer nations
- Bellmare (2014) found that food prices increases (NOT fp volatility) were causally linked to social unrest between 1990-2011; his graph shows food related riot deaths compared to Food Price Index
- Impact: Many countries don't want to be subject to global food price increases, thus countries w/o enough land for their own food supplies are making deals/land acquisitions/land grabs with other countries
Cause of 05-08 food price increases:
- Headly & Fan (2008)
- Growth in Indian/Chinese demand; due to middle-class growth
- Financial speculation; buying up arable land with expectation of price increases
- Weather shocks e.g. Australian drought --> large proportion of wheat crop knocked out
- And demand for biofuels??
Biofuels and rising food prices:
- Can see that as global biofuel demand increases, both corn and soybean prices also increase (US Dep. Energy, Food and Policy Research Institute, 2011)
- Mechanism (theoretical):
- Growing a crop for biofuel means it competes with food crops for inputs (land, water, etc.); competition means increases input costs; if input costs are passed on to consumer --> price increases
Andrade de Sá, Palmer & Engel (2012) on the mechanisms behind biofuel and food price increases:
- They look at a partial equilibrium model of a national economy with two regions; non-forest/agriculture and a forest region
- Two inputs are land and labour, two outputs are food and biofuel
- When biofuel demand rises (e.g. if a biofuel mandate were imposed), they find that increased ethanol production unambiguously REDUCES food production due to 3 partial effects:
- Direct land competition
- Indirect displacement (where one land use is replaced by another e.g. food crop land replaced by ethanol crop land)
- Labour mobility
- Model assumptions:
- Mobility of the labour; can it move between regions freely?
- Where is the energy crop produced?
- What is the elasticity of the price of food production? This also has effect.
So they find that increasing biofuel demand increases biofuel supply (increasing energy security?), but reduces food production and increases food prices (lost food security?) but also increases agricultural labour demand hence higher wages and better livelihoods (which may offset increased food prices)
WB Report (2010) on FAOSTAT (2009):
- Total 2008 area for biofuel industry was 36m ha
- This was twice as much as in 2004
- it's estimated that between 18-44m ha of land will be converted for biofuel use by 2030
- To determine the importance of crop competition, we need to look at how biofuel crop production is organised
- Crops often grown very close to production plants
- Location matters given that harvested biomass will deteriorate within 24 hours in many tropical climates
- So is a high fixed cost, as you need to ensure that inputs come in reliably - and also shows there's economies of scale; more efficient at scale - i.e. large farms better placed to overcome market imperfections e.g. finance access, insurance, building of public infrastructure e.g. roads
Indonesian Palm Oil Industry (jobs & livelihoods)
- Industry very labour-intensive
- Malaysia + Indonesia = 85% of industry output
- Indonesia has out-grower scheme; WB suggests has helped reduce poverty/increase employment/income growing faster for smallholders involved than not (Rist et al, 2010)
- Benefits:
- Small-holders offered fixed price (Glover, 1984) --> offered finance, inputs, technical assistance etc. --> steady income stream + steady supply for processor
- Fixed sale price guarenteed for farmers
- Issues:
- Processesing units operate at enormous scale --> very strong market power --> small holders very dependent on whatever price is offered; have no bargaining power as no other buyers
- Poorly defined land rights --> cases of land expropriation
- Environmental impacts of palm oil
- Consequences include lack fo consultation, conflict, limited benefit distribution, land expropriation
Class on Biofuels and Food Security
- In making arguments on this topic, bring in info on how biofuels interact with/cause commodity price booms
- Biofuel DOESN'T compromise food security:
- Only compromises food production if in direct competition with it
- It generates income and jobs; can offset food scarcity - no change to real wages
- Second generation biomass not necessarily needing to compete with land use for food (e.g. may be in non-rival areas)
- Health benefits for countries that burn biomass; switching to biofuel potentially healthier (NB this depends on rural electrification/infrastructural changes)
- 'universal truths concerning biofuel development are not likely to exist' - it's context specific so we cannot sweepingly say that it increases food insecurity in all places
- Biofuel DOES compromise food security:
- In SSA food accounting 40% of budget, 10% in US/EU --> disproportionately vulnerable
- Exports will become more expensive --> poor/net importers able to afford less + if poor countries are net exporters, they may end up exporting much produce/cash crops out of the country --> lack of food availability domestically
- Biofuel can help poor receive benefits:
- Income and job generation better for those in Indonesian out-grower schemes
- Best when tech and inputs are distributed/shared
- Can lead to wider technology spillovers which can improve wider agri productivity
- Paper suggests biotech has helped meet local energy demand for economic and household uses
- It finds biotech such as bioenergy production from non-edible oil seed trees e.g. jatropha are bringing wide range of benefits to rural areas including off-grid electricity and fuel for processing grain; also finds women benefitting as traditional HH cooks; much healthier than indoor non-clean burn cooking use
- Biofuel doesn't help poor receive benefits:
- Small holders most often unable to unionise; may be cases whereby plant owners wield their market power
- Techn spillover requires tech literacy + access to credit and other inputs at right time
- M. Cramer finds that with fertilisers, there may also be market failures due to behavioural problems; farmers have a lot of money after harvest; lot of temptation to spend between harvesting and next planting - introduced a commitment device and found that if buying a contract at the end of the harvest saying they'll buy a certain amount of inputs just before the next planting season, then they end up better off
- Market failures in general; if there were no market failures, shouldn't all the above be sorted on its own? In reality, it requires strong government oversight
Ewing and Msangi (2009):
- They're the ones saying about how biofuels can give opportunities to generate income, expand agri production tech and thus give welfare gains that improve PPP and decrease vulnerability to price shocks
- Argue that smallholders can gain, but only in appropriately designed and enforced markets
- Important assumption they make is that if we're to have success with pro-poor biofuel markets, we need to not leave the markets to themselves; 'purely commercial interests will always tend towards larger schemes that provide the best return on private investment' - in exam comment on the viability of this in current neoliberal markets
- They refer to examples in SSA where growth in the productivity of staple crops has strong poverty-reducing impacts
- They also highlight that now we know the effects of first-gen crops, we need to pass this advice on and ensure that countries considering biofuel development can make informed choice as to whether or not to wait for 2nd gen to become commercially viable
Wright (2014)
- Paper identifies why in 2005, despite higher stocks of grain, we also saw higher grain prices
- Surge in EU/US led biofuel production
- Corn use for ethanol in US doubled then doubled again after 2003/4 and 4/5
- Note that whether prices are affected crucially relies on whether the mandate on fuel blend is temporary; if so, the change is absorbed by using grain in storage for next period now
- Suggests that speculation not the primary cause of food price increases, but biofuel production
- Argues that market prices will remain high for as long as demand for biofuel generated calories outruns the expansion of supply
- Also suggests that until 2nd gen biofuels make an appearance, the market may slow or reverse given the loss of environmentalist support and watering down of mandate policy
Chakravorty et al
- 1% of global cropland used for biofuel in 2004
- The only viable sub for transport in the near future is first-generation biofuels <-- this is no longer true with electric cars taking an increasingly large share of road vehicles and gov pledges to go electric by 2040
- Find that studies show that biofuels lead to encraochment into forested lands leading to release of more carbon
- Predict the supply of biofuels will continue to push up price of food; corn and oil seed prices to increase between 65-75%, but only by 45-50% if using 2nd generation biofuels
- They demand more studies on the process of converting land to biofule use; link in this demand to the other research mentioned that did this
- Argue that we need to ensure we're looking at biofuels in a wider context; e.g. looking at the impact of the consumer demand for switch to renewables, how effective carbon cap and trade programmes are etc.
Naylor et al:
- Find as example that china was concerned about biofuel production increasing demand for foreign food imports --> concerning for gov --> gov banned crop production for biofuels on land that was traditionally used for staple food crops; must be grown on marginal soils
- Does meta analysis on food security; finds generally large increases in cassava prices, moderate to large in maize prices, morderate increases for vegetable and palm and ambiguous effects on soybean prices
- Importantly, they find that most studies focus on a limited number of scenarios surrounding industrial-world production, with far fewer attempting to look at the links between biofuels and food-insecure people in LICs
- Find work done on this tends to diide countries among food and energy suppliers by income group, but that this approach doesn't embed dynamics of rural development that may result from higher agricultural prices
- Need more analysis of how and what people eat to see if poor people are the ones eating the primary biofuel food crops; e.g. in Malawi, >1/3 calories come from maize (a key biofuel crop) suggesting increased vulnerability to price change
- Palm oil doesn't account for large share of calories consumed in poor countries, but does account for large amount of the fats consumed
- Also makes an obscure point saying that countries e.g. Liberia and Guatemala are getting over 1/10th of their food from food aid; and then perhaps higher food prices would greater incentivise assistance with investment into poor countries
- Argue one of the ke uncertainties of the ripple effect of biofuel growth is how agri development patterns will respond to rising prices in international markets - will depend on economic incentives + governance
- Argues for good design e.g. copying the Roundtable on Sustainable Palm Oil as an audit process to go pro-poor
- EU creating biofuel sustainabilty criteria
- In exam, argue that it mainly comes down to the governance and design of policy to manage market
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Possible Questions:
- Critically discuss the proposition that expanding biofuels production has both negative and positive impacts on the environment.
- To what extent might increasing biofuel production compromise on ‘food security’ in developing countries?
- Critically examine the claim that biofuels are beneficial for the environment.
- Discuss how increasing biofuel production compromises food security in developing countries
- Critically examine the claim that biofuels are beneficial for the environment
- Given pattern, seems a bit more likely that this year it'll be discuss how biofuels can compromise food security.