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					                              Internal media report on
                                     BIOFUELS

                          Special focus for January 2008:
                             Food Prices and Biofuel



                                    GTZ – ProBEC




1. NEWS ON SADC CONTRIES AND BIOFUELS

1.1 Namibia: Biofuels for the future
Allafrica.com
By Catherine Sasman
1 February 2008

With crude oil prices unlikely to decrease from an all-time high of about US$100 per
barrel, Namibia joins the race to find sustainable alternatives. Imagine spending
N$10 on fuel to cover a distance of about 600 kilometers. This is what Michael Linke
did a few weeks back with his diesel truck. It is not a conventional diesel truck,
however. In October, he converted the truck to be able to use waste vegetable oil in
tandem with diesel.


1.2 Biofuels 'are not a magic bullet'
BBC News
By Richard Black
17 January 2008

Biofuels may play a role in curbing climate change, says Britain's Royal Society, but
may create environmental problems unless implemented with care. It advocates
more research into all aspects of biofuel production and use.


1.3 Zambia sees FDI doubling in 2008
Reuters
By Shapi Shacinda
8 January 2008

Zambia has projected that foreign direct investment in copper and cobalt mining,
agriculture and other sectors will double to $3 billion in 2008 from $1.4 billion the
previous year, a government minister said on Tuesday.
1.4 Bright future for biofuels in Congo, UN says
Reuters
By Golnar Motevalli
7 January 2008

The Democratic Republic of Congo is one of Africa's most promising biofuels
producers due to its vast amount of farmland suited to a range of crops from palm oil
to soybeans, a top UN economist has said.


1.5 Govt may adjust biofuels strategy - Grain SA
engineeringnews.co.za
By Olivia Spadavecchia
7 January 2008

South Africa may reconsider its decision to exclude maize as a feedstock for biofuels
production, following a meeting between industry players and the Minister of Land
Affairs and Agriculture, Lulama Xingwana in December, Grain SA GM Kobus
Laubscher said on Monday.


1.6 Food Security Hobbles Biofuel Strategy
IPSnews.net
By Stephanie Nieuwoudt
18 December 2007

Worried that it may be seen as insensitive to the food needs of Africa, the South
African government, which is facing a general election in 2009, has chosen food
security in framing a biofuel policy.




2. NEWS ON ENVIRONMENTAL AND SOCIAL CONSIDERATIONS FOR
SUSTAINABLE PRODUCTION OF BIOFUELS
- Focus on food prices and the EU proposal for climate change legislation


2.1 EU states handed ambitious renewable energy targets
Euractiv.com
24 January 2008

The European Commission put forward ambitious targets yesterday (23 January) to
boost the EU's overall consumption of renewable energies to 20% by 2020. But while
the plans to promote technologies such as solar and wind were largely
welcomed, Brussels faces widespread criticism over controversial biofuels targets.


2.2 Q&A: European Commission climate change laws
The Times
24 January 2008
2.3 Commission defends biofuels in face of mounting criticism
Euractiv.com
21 January 2008

The EU's energy and agriculture commissioners have joined hands in defending the
bloc's commitment to biofuels, following calls by a UK parliamentary committee for a
moratorium on the promotion of the controversial alternative to fossil fuels.


2.4 Biofuels protectionism trumps climate concerns
Reuters
17 January 2008

Despite world concerns about global warming and the impact of biofuel production on
food prices, policy makers have done little to boost international trade of cheaper
and more environmentally friendly fuels for consumers, experts said.



2.5 OECD calls biofuel tariffs "wasteful" and "distorting"; calls for open
markets
Biopact.org
14 January 2008

Governments may be getting a clearer picture of the shortcomings of current biofuel
policies but the likelihood they can remedy any wrongs looks far from certain, a
senior OECD official said on Monday.


2.6 Don't impose food price controls, warns World Bank
IRINnews.org of the UN
9 January 2008

Food prices have risen nearly 75 percent within a decade and will continue to do so,
hurting the poor, warned the World Bank's annual Global Economic Prospects 2008,
which suggested that governments ease control over food prices and provide
targeted safety nets.


2.7 FAO calls for steps to boost farm output in poor countries to counter
soaring food prices; points to Malawi's success
Biopact
17 December 2007

The UN's FAO is urging governments and the international community to implement
immediate measures in support of poor countries hit hard by dramatic food price
increases. It calls for steps to improve poor farmers' access to inputs like seeds,
fertilizer and other inputs to increase local crop production. The FAO refers to the
success in Malawi's farm sector, which succeeded in turning itself around from being
a food importer to producing a huge excess of food.
2.8 Cheap no more - Rising incomes in Asia and ethanol subsidies in
America have put an end to a long era of falling food prices
The Economist
By Gerrit Buntrock
6 December 2007

Record food prices are being achieved at a time not of scarcity but of abundance.
According to the International Grains Council, this year's total cereals crop will be
1.66 billion tonnes, the largest on record and 89m tonnes more than last year's
harvest. That the biggest grain harvest the world has ever seen is not enough to
forestall scarcity prices tells you that something fundamental is affecting the world's
demand for cereals.


2.9 IMF chief economist: biofuels could                help    cut   farm   subsidies,
protectionism main cause of high food prices
Biopact.org
6 December 2007

The trend toward increasing production of biofuels provides an opportunity to
dismantle agricultural subsidies and tariffs in wealthy countries, according to the
International Monetary Fund’s top economist. Non-governmental organisations and
developing country governments have been calling for farm subsidy and trade reform
for years, to give producers in the South a chance to develop domestic markets.
Biofuels offer an opportunity to bring about this much needed transformation.
1. NEWS ON MOZAMBIQUE / SOUTH AFRICA AND BIOFUELS


1.1 Namibia: Biofuels for the future
Allafrica.com
By Catherine Sasman
1 February 2008

With crude oil prices unlikely to decrease from an all-time high of about US$100 per
barrel, Namibia joins the race to find sustainable alternatives. Imagine spending
N$10 on fuel to cover a distance of about 600 kilometers. This is what Michael Linke
did some weeks back with his diesel truck. It is not a conventional diesel truck,
however. In October, he converted the truck to be able to use waste vegetable oil in
tandem with diesel. The consideration for the conversion was not only to cut costs
with petroleum prices that shot up last year.

As the managing director of the Bicycling Empowerment Network Namibia (BEN
Namibia), Linke is particularly concerned about sustainable transport to mitigate the
effects of carbon dioxide on global warming. "The burning of vegetable oil does not
produce sulfur and heavy metal emissions; in bigger cities diesel emissions cause
more deaths than road accidents," said Linke, from his backyard in Windhoek where
he showed New Era how the vegetable oil-run engine works. "The equipment is
pretty simple; it is available technology that could be produced locally within five to
10 years," said Linke. The conversion system consisting of three components comes
from a USA company Greasecar, and is valued from US$900 to US$1 200. A
standard diesel fuel filter and two valves enable alternating between diesel and
vegetable oil. A switch is attached close to the steering wheel to alternate the fueling
of the engine. He also fitted an extra 50-liter tank at the back of the truck for the
vegetable oil, while the diesel tank is still in place.

Linke gets his supplies of waste vegetable oils from Wimpies, Nandos and the
Gourmet Restaurant that use huge amounts of oil in their cooking. Because the
waste oil, which is not suitable for human consumption, has food particles like
chicken or chips, Linke uses a cloth to filter the oil. This process separates water,
food particles and hydrogenated oils from the vegetable oil that will be used as fuel.
"It is a very simple method of cleaning the oil. One can even do the pre-filtering with
an old pair of jeans that have become fibrous. One should be careful that there is no
bacterial contamination of the oil." A drawback is that vegetable oil does not heat up
as fast as diesel. The energy density of the vegetable oil is about five to ten percent
less than diesel. Because it takes longer to heat up, said Linke, it becomes more
viable to run the engine on diesel, and only about 20 percent of vegetable oil, when
driving in town. Before switching over to the use of waste vegetable oil, Linke was
running his truck on bio-diesel, which he produced from oil extracted from the
jatropha curcas plant, which he planted in his backyard. Vegetable and bio-diesel
fuel can, however, only be used on diesel engines. Diesel cars use injectors, while
petrol cars burn fuels.

The search for alternative fuels, and bio-fuels, is gaining momentum here in
Namibia, said Dean of the School of Natural Resources and Tourism with the
Polytechnic of Namibia, Lameck Mwewa, primarily because of the exorbitant price of
crude oil, concerns over global warming. Another consideration is that the production
of bio-fuels locally is seen as a means to fight poverty. And the demand for energy is
growing. When populations and living standards rise, the demand for modern energy
increases as well. Today, global wealth is 30 times bigger than what it was at the
turn of the twentieth century and the world population has quadrupled. As a result,
global energy demand has grown more than ten-fold. This trend is likely to continue.

Interest is particularly growing in the perennial oil nut bearing jatropha tree, which is
viewed as the most feasible plant for dry-land cultivation for the extraction of bio-oil.
The plant was often used for snakebites, as an insect repellent and for constipation.
The jatropha tree originates from South America, but was brought to the southern
African region by Portuguese explorers. The seeds of the plant grow on low fertility
soils in low and high rainfall areas; it has a small gestation period, and can be
harvested in non-rainy seasons. The size of the plant is also convenient for collection
of seeds. It produces seeds with a high oil-content (30 to 40 percent) after two to
five years, depending on soil fertility and rainfall. According to Mwewa, the plant can
yield one liter of oil from three kilogrammes of the nuts, and harvesting can be done
over a 50-year period.

The oil from the jatropha plant can be transformed into bio-diesel fuel - which is
produced from the reaction of vegetable oil with alcohol in the presence of a catalyst
to yield mono-alkyl esters and glycerine, which is then removed - through an
etherification process. What makes it more popular amongst protagonists of bio-fuels
is because of its toxicity, it is not for human consumption, and therefore not in
competition with food crops. Threats to food security are recognised as the primary
drawback of large-scale bio-fuels development.

Bio-ethanol (which is alcohol produced by fermenting and then distilling sugars), for
example, is produced from carbohydrate-rich plants like sugarcane, maize, beet,
cassava, wheat and sorghum. In Brazil, staple food prices have soared over recent
years because of the rush to produce energy crops.

Another advantage of jatropha - or other plant fuels - is that it is carbon dioxide
"neutral". This means that carbon dioxide emissions are "sucked in" by plant
production, unlike fossil fuels. Moreover, said Mwewa, the jatropha crop alleviates
soil degradation, desertification and deforestation. One criticism is that the jatropha
plant is invasive, thus shouldering out indigenous plants. Mwawe contests this view.
Through his travels he found huge amounts of jatropha trees in the marshes of the
Congo, in Zambia, even in certain parts of Namibia. "But the plant does not spread,"
he insists.

Bio-diesel also reduces all forms of air pollution. Pure bio-diesel can reduce the
cancer risks by 94 percent. B20 (which means 20 percent bio-diesel and 80 percent
petroleum) reduces the risks of air pollution by 27 percent. Because there is no
sulfur in bio-diesel, it will not contribute to sulfur dioxide emissions or poison exhaust
catalysts.

The Agronomic Board, which did a study on the 'national bio-oil energy roadmap' for
the country in 2006, said the jatropha is suited to smallholders of land, as well as
large-scale farming. The Agronomic Board envisaged that approximately 63 000
hectares of jatropha would be planted in Namibia by 2013, the first phase towards
2030. This would translate into an industry that would contribute an additional
N$189 million in Gross Domestic Product (GDP) to the economy. Based on 2005
prices, this would contribute 0.5 percent to GDP.
Namibia's liquid fuel consumption in 2005 was about 870 million liters, which is
about two percent of fuel consumption in southern Africa. Of this, 52 percent was
diesel and 44 percent petrol consumption. The remainder liquid fuels used were
paraffin, heavy fuel oil and jet fuel. "If we can substitute just 10 percent of all the
fuel imports with local plant oils, the country can save a lot of foreign exchange,"
said Mwewa.

According to the Agronomic Board, the options for bio-fuel crops are confined to the
northeastern part of the country, where there are large tracks of land available. For a
biofuel industry, it said, constraints are the competition for land, the problem of
proper security of tenure mostly in communal areas, and the risk of further land
degradation. Although the interest for the production of bio-fuels are increasing with
many applications for land gone to the Ministry of Lands for this purpose, the
Agribank of Namibia has not yet granted any loans to applicants particularly
interested in this line of production, said Regan Mwazi.

Farmer in the maize triangle, Peter Zensi, said the development of a bio-fuel industry
amongst the farming community is also very poor, despite the existence of three
projects in the communal areas of the Kavango. "To earn carbon credits, a farmer
has to have a leasehold, and the Ministry of Lands is not prepared to give a
leasehold," said Zensi. It is also not yet clear what the yields per hectare would be.
Another factor impeding the development of bio-fuel production in commercial
farming areas, said Zensi, is the obligatory minimum wages of N$2.20 per hour, and
the provision in the new Labour Act that workers have to be registered with the
employer even if such worker only works for one day. This would make harvesting
less economical, he said.

Loffi von Lansberg, who farms on Shadikongoro east of Rundu, has taken the plunge
and planted 18 000 jatropha trees on 15 hectares a year ago. Von Lansber said he
expects to harvest this year. He previously planted sunflowers, and yielded two tons
of vegetable oil per hectare in the first year. Last year, the yield was eight tons per
hectare. But with the increase in prices of pure sunflower oil, the production has
become too expensive. He anticipates to use the oil extracted from jatropha for use
on the farm, which uses about 100 000 liters of diesel per year.

Mwewa also said that it would only be financially viable to use bio-fuels if the crude
oil price remains above the US$50 per barrel. "But we need to unlock the energy
potential of bio-fuels; it is linked to all aspects of development," said Mwewa.



2.2 Biofuels 'are not a magic bullet'
BBC News
By Richard Black
17 January 2008

Biofuels may play a role in curbing climate change, says Britain's Royal Society, but
may create environmental problems unless implemented with care.

In a new report, the Society suggests current EU and UK policies are not guaranteed
to reduce emissions.

It advocates more research into all aspects of biofuel production and use.
The report says the British government should use financial incentives to ensure
companies adopt cutting-edge and carbon-efficient technologies.

"Biofuels could play an important role in cutting greenhouse gas emissions from
transport, both in Britain and globally," said Professor John Pickett from Rothamsted
Research, who chaired the Royal Society's study.

"But it would be disastrous if biofuel production made further inroads into biological
diversity and natural ecosystems.

"We must not create new environmental or social problems in our efforts to deal with
climate change."

Variable savings

Biofuels - principally ethanol and diesel made from plants - are one of the few viable
options for replacing the liquid fuels derived from petroleum that are used in
transport, the source of about one quarter of the human race's greenhouse gas
emissions.

Vehicles, and the infrastructure for delivering fuel through filling stations, can be
modified at marginal cost - certainly compared with the price of a large-scale switch
to hydrogen or electric vehicles, even if they were to prove technologically and
economically worthwhile.

Hence the adoption by Europe and the US of policies to stimulate biofuel production
and use.

But a number of recent scientific studies have shown that the carbon savings from
using biofuels compared with petrol and diesel vary hugely, depending on what crop
is grown and where, how it is harvested and processed, and other factors.

There are also concerns that widespread planting and use of biofuel crops would
threaten natural ecosystems and raise food prices.

Policymakers are increasingly aware of such concerns. Before the Royal Society
launched its report, European Environment Commissioner Stavros Dimas told the
BBC that the EU had not foreseen all the issues thrown up by its target of providing
10% of Europe's transport fuel from plants.

Launching the Royal Society report, Professor Pickett noted that current EU and US
policies did not mandate that biofuels should achieve any carbon saving.

The report said that the UK government's Renewable Transport Fuel Obligation
(RTFO), which mandates that 5% of fuel sold on filling station forecourts by 2010
must come from renewable sources, suffers from the same flaw, though changes are
being discussed in Whitehall.

As a result, the report concludes, these policies "will do more for economic
development and energy security than combating climate change".
Next generation

On the UK policy front, the Society advocates:

      extending carbon pricing to transport fuels
      providing specific incentives for innovative approaches to fuels and vehicles
      extending the RTFO to 2025

More generally, it says research into new biofuel technologies should be encouraged
through financial incentives.

Of particular interest are ways of processing lignocellulose, the material which makes
up the bulk of many plants and trees. Learning how to convert this easily and
cheaply into ethanol or other biofuels would make refining much more efficient, and
vastly expand the range of crops that could be used.

"What we have to do is to undertake research and development in such a way that
we can unlock the tremendous potential that nature has provided us with in terms of
getting enzymes to degrade cellulose and make ethanol," said Professor Dianna
Bowles from the University of York, another member of the Royal Society's study
group.

"Nature has provided countless potential solutions in organisms as diverse as cows
and microbes, and that offers tremendous hope."

But alongside this technology-focussed research, said Dr Jeremy Woods of Imperial
College London, should go programmes aimed at measuring the true environmental
and social impacts of different approaches.

He gave the example of African nations such as Tanzania, where various parties
including the government, local entrepreneurs and multinational companies are
exploring the potential of biofuel crops.

"Tanzania is quite likely to start indigenous biofuel production," he said, "and if they
do it in a good way, they could improve food production and preserve biodiversity."

He suggested establishing some sort of certification scheme for biofuels, similar to
ones already in existence for timber and fish, to show which are produced
sustainably.

But, he said, there was a need to keep problems in perspective, particularly the idea
that rainforest-destroying palm oil plantations were being established all over
southeast Asia simply to provide biodiesel.

"Only about 0.7% of palm oil used in the EU is used for biofuel production," he said.
1.3 Zambia sees FDI doubling in 2008
Reuters
By Shapi Shacinda
8 January 2008

Zambia has projected that foreign direct investment in copper and cobalt mining,
agriculture and other sectors will double to $3 billion in 2008 from $1.4 billion the
previous year, a government minister said on Tuesday.

Trade and Commerce Minister Felix Mutati said China alone would invest up to $400
million in the southern African country to construct a smelter at a new nickel mine,
among other projects.

Mutati said the bulk of the investment was expected in agriculture and tourism and
would significantly contribute to an expected 7 percent expansion in gross domestic
product this year, create 100,000 new jobs and help reduce poverty.

"Last year we achieved $1.4 billion in new investments and we expect $3 billion to
be invested this year alone. China may contribute between $300 million and $400
million," Mutati told Reuters in an interview.

The Chinese would construct a new smelter at a cost of about $120 million to
process nickel at Munali mine after entering into partnership with Australia's Albidon
Ltd, which will start to mine nickel this year.

"Expansions in the (copper and cobalt) mines will bring in about $500 million and
another $56 million will be invested in a new refinery for edible oils while a new
transformer and meter (manufacturing) company will invest $56 million," Mutati
said.

NEW JOBS SEEN CREATED

He said foreign investors would construct a 900-bed hotel complex in the capital
Lusaka, complete with a shopping mall and office blocks and others were planning to
invest in a pan-African bank in Zambia.

"There will also be another cement plant that will be constructed and various
agriculture projects are expected to take off this year. All these investments should
create about 100,000 or more new jobs," he added.

A huge project to grow a jatropha plant for producing biofuels was expected to start
as Zambia sought to diversify its economy from mining to agriculture, tourism,
manufacturing and other sectors, Mutati said.

The new investments would help reduce poverty among 65 percent of Zambia's 12
million people and create opportunities for nationals to form their own enterprises.

"This year, the government intends to provide financing to Zambians through the
Citizens Empowerment Fund to help create wealth and reduce poverty," Mutati said.
Zambia's government has created multi-facility economic zones (MFEZ) where
foreign firms will enjoy a waiver on customs duty on imported equipment, excise
duty and value added tax, among other concessions.

Analysts say Zambia has attracted direct foreign investment since the International
Monetary Fund (IMF), World Bank and other Western lenders slashed its foreign debt
to $502 million in June 2006 from $7 billion.

GDP growth has averaged 5.0 percent in the last six years while inflation has fallen
to single digits in the past two years after more than three decades of double digit
inflation.




1.4 Bright future for biofuels in Congo, UN says
Reuters
By Golnar Motevalli
7 January 2008

The Democratic Republic of Congo is one of Africa's most promising biofuels
producers due to its vast amount of farmland suited to a range of crops from palm oil
to soybeans, a top UN economist has said.

Dr. Josef Schmidhuber, senior economist at the UN Food and Agriculture
Organisation (FAO), told Reuters the DRC had 80-115 million hectares of unused
arable land, 4 million of which could be irrigated. "The DRC and many of the African
countries have an enormous agri-ecological potential," Dr Schmidhuber said a
telephone interview. "They have production potential for more than (sugar) cane:
palm oil, maize, jatropha, cassava even soybeans -- whatever is suited to tropical
and highland conditions."

Many countries seeking to produce biofuels have run into problems over the use of
land, and environmental campaigners have accused palm oil growers in Indonesia,
for instance, of cutting down rain forests to make room for feedstock. Schmidhuber
said this need not be an issue in Congo, home to the world's second largest
rainforest, given the substantial amount of arable land outside precious rain forest
areas. "The normal perception is that biofuels destroy the environment, particularly
palm oil on existing rain forest land, but that doesn't have to be the case,"
Schmidhuber said. And using land for energy crops should not necessarily be at the
expense of food production, he added. In fact, producing bioenergy from domestic
agriculture could boost productivity, as a lack of energy is a key factor holding back
agricultural productivity and food production.

DRC, in central-eastern Africa, is rich in natural resources with a land area the size of
western Europe but years of civil war have hindered economic growth and inward
investment. Schmidhuber said it would be difficult to produce biofuels for export and
Congo would benefit most by providing fuel for domestic consumption. "You have to
bear in mind barely 1 percent of the rural population has access to electricity ...
There's a need for empowerment and to be sufficient in energy and not just food."
He said capital investment in the sector from abroad depended on the scale of
demand, referring to China's well-established interest and investment activity in
Congo. "Domestic support seems to be there, there is a government programme that
essentially stresses that one should try to explore energy options with the objective
to produce motor-fuel and electricity," Schmidhuber said.

Latest World Bank figures show $402 million of foreign direct investment went to
Congo in 2005. Other countries with similar potential to supply themselves with
biofuels were Zimbabwe, Mozambique and Malawi, he added.
(Editing by Chris Johnson)




1.5 Government may adjust biofuels strategy - Grain SA
engineeringnews.co.za
By Olivia Spadavecchia
7 January 2008

South Africa may reconsider its decision to exclude maize as a feedstock for biofuels
production, following a meeting between industry players and the Minister of Land
Affairs and Agriculture, Lulama Xingwana in December, Grain SA GM Kobus
Laubscher said on Monday.

He said that the joint outcome of the meeting was that the bill was not closed and
that the new information presented by Grain SA regarding the decision would be
taken back to Cabinet.

The Minister's spokesperson, Godfrey Mdhluli, would not confirm whether the
decision was being reconsidered and said that there had been no changes from the
strategy presented by Cabinet last year.

On December 6, Cabinet approved the biofuels industrial strategy for the
development of biofuels in the country, but the first phase of the strategy (2008 to
2013) excluded maize as a feedstock owing to concerns about food security, fears of
price increases and the fact that maize serves as a staple food source for the
majority of poor in the country.

However, Laubscher argued that, excluding maize would put a lid, or ceiling, on what
could be produced in South Africa, as that local consumption was about nine-million
tons a year, and production in excess of that generally resulted in very low prices for
producers. South Africa produces in the order of 12-million tons a year.

He reiterated that Grain SA, and the grain farmers it represented, would "in no way
compromise on food security", and that "creating an opportunity for the
establishment of alternative markets would actually add to confidence within the
industry".

When asked about the potentially conditions that should be taken into consideration
when reviewing the exclusion or inclusion of maize, Laubscher said that the industry
could possibly distinguish between white and yellow maize.

He added that it was also necessary to look at South Africa's history - whether it had
been in a position in which food security had been compromised.

"South Africa has the ability to produce enough maize for internal consumption... we
are currently producing less than what the potential is in South Africa," Laubscher
stated.
'We are currently producing less than what the potential is'

He also said that there was potential for the "recommissioning of marginal land", in
which farmers would be able to recultivate idle land, and possibly use it for maize
production.

Laubscher noted that one of the organisation's senior economists, Wessel Lemmer,
had been seconded to the department to assist with the review of the decision.

He believed that government's decision was motivated by a desire to minimise risk,
and he did not view it as being in conflict with Grain SA, but rather as a "different
assessment of the situation".

He expected that, by the end of the month, a schedule would be drawn-up outlining
the interaction between Grain SA and the Minister. Grain SA was also hoping that in
the next four to six weeks there would be another meeting with Xingwana in which
they could review the new facts.

South African Biofuels Association (Saba) president Andrew Makenete previously
said that government's strategy flew in the face of logic and that it was minimising
opportunities.

Saba was also present at the meeting with Xingwana and Makenete said that the
association would meet with other Cabinet Ministers to further the discussions.

‘Road map'

He explained that the association would propose to government the formalising of a
"road map" for biofuels similar to the one created for the coal industry and would
reiterate the valuable opportunity for South Africa of including maize in the biofuels
mix.

The plan would focus on the mitigation of food insecurity, rapid biofuels expansion,
assuring efficiency, meeting demand and promoting opportunities for new industrial
participants.

Makenete noted that the alternative crops highlighted by the strategy for biofuels
production, sugar beet and sugar cane, would require the greatest utilisation of
water and were thus "surprising" starting points in a country where water was not in
abundant supply.

No other crop in the world had attracted more research funding than maize, which
was likely to beat all other crops to drought resistance and optimum starch content
especially for ethanol production. - with reporting by Martin Creamer

Makenete added that Saba would continue to advocate that South Africa was ideally
suited for a multi-feedstock approach that was especially inclusive of maize, and
commented that discussions with the task team responsible for compiling the
strategy did not allude to the potential for it being excluded.



1.6 Food Security Hobbles Biofuel Strategy
IPSnews.net
By Stephanie Nieuwoudt
18 December 2008

JOHANNESBURG, Dec 18 (IPS) - Worried that it may be seen as insensitive to the
food needs of Africa, the South African government, which is facing a general
election in 2009, has chosen food security in framing a biofuel policy.

After months of dilly-dallying, a strategy for the biofuel sector was accepted by the
cabinet last week. But the Thabo Mbeki government excluded maize, a life-saving
export during times of recurring drought in Southern Africa.

Politics, according to independent observers and the lobby pushing for maize as a
source of biofuel, influenced the announcement, which preceded the ongoing
conference of the ruling African National Congress (ANC) to elect a new party leader.

"This decision was a complete surprise," said a shocked Andrew Makenete, president
of the South African Biofuels Association (SABA). "The government not once during
talks expressed the possibility that maize would be excluded. It was supposed to be
the foundation of a South African biofuels project," he lamented.

SABA and Grain South Africa had lobbied for maize with government officials and
Tito Mboweni, president of the South African Reserve Bank, who a few months ago
had warned that a diversion of the staple for biofuels could lead to an increase in
prices and threaten food security in the region.

"Although we do not want to presume to speak on behalf of government, it could be
that the concerns raised by Mboweni influenced this decision," Makenete told IPS in
an interview.

The decision was political, commented Emile van Zyl, professor of microbiology at
the University of Stellenbosch, who has been at the forefront of a project to convert
biomass into biofuel.

"Food security is not just a rational but also an emotional issue. With the ANC party
conference in mid-December and a general election in 2009, the government was
not taking any chances on being seen as insensitive to food security," he explained.

Grain South Africa's Wessel Lemmer said that South Africa produces 8.6 million
tonnes of maize annually whereas it has a capacity of 12 million tonnes. Over a
million hectares of available land are lying idle because of weak markets over the
last two decades and production costs overstripping the income, he claimed.

"If we have a market for the potential three million tonnes," he pointed out, "we are
making a huge contribution to economic growth in this country."

Moreover, according to Kobus Lindique, managing director of Monsanto sub-Sahara
Africa, the transnational agro-giant, the government’s refusal to include maize in the
biofuel strategy could have a negative impact on South Africa’s land reform policy.

By 2014, 30 percent of farm land has to be in the hands of black owners. But the
transfer process has been very slow, sparking fears that the restive masses could
resort to largescale takeover of agricultural holdings belonging to white farmers, as
in neighbouring Zimbabwe.

According to Lindique, "the ethanol maize project (with a huge demand for maize)
would have been the perfect opportunity for the government to settle black farmers
on farms as part of the land reform policy."

The National African Farmers Union was also surprised. However, Molefe Mokoene,
chief executive officer, said that since "we have not yet seen documentation for
cabinet, we cannot speculate on reasons for the exclusion."

In South Africa, the private sector has shown willingness to invest in biofuels. A 100
million dollar bio-ethanol plant, the first of eight being planned, is under construction
in Bothaville in the Free State province. However, when IPS tried to contact the
president, Johan Hoffman, he was not available for comment.

Under the biofuel strategy, the government has reduced targets from 4.3 percent to
two percent, from sources like sugar beet, sunflowers (for bio-diesel) and sugar cane
(for the production of ethanol). Microbiologist van Zyl described the downward
revision as "too low".

"South Africa uses 20 billion litres of fuel annually, of which 12 billion is petroleum
and eight billion diesel. A two percent target will effectively translate to a production
of only 400 million litres of fuel. This means that only one plant can be erected and
that employment opportunities are limited," he asserted.

Erhard Seiler, chief executive officer of SABA, shared the view. "The economy of
scale is too small. It does not make the biofuels strategy viable," he said.

SABA’s Makenete had challenged the food security concerns in an article in the
Business Day newspaper. He rubbished the tendency to blame biofuels for price
increases of commodities across the board as "pure hype".

He pointed to the 'OECD-FAO Agricultural Outlook 2007-2016' that highlighted lower
world opening stocks, increased demand, drought and market inefficiencies for
higher prices. (This report was produced jointly by the Organisation for Economic Co-
operation and Development and the Food and Agriculture Organization of the United
Nations.)

The 'Agricultural Outlook' warned that it would be premature to attribute a long-term
rise in commodity prices to biofuels.

Pro-maize officials also opposed environmental concerns about the increase in maize
production in a country like South Africa, where water has been a problem because
of recurrent drought. According to Seiler, maize requires far less water than a
guzzler like sugar cane, which the government has included in its biofuel strategy.

"At SABA we believe that a higher biofuel target would have ensured food security,"
he told IPS. "If there is a huge demand it increases production as more players enter
the field to provide in the market for consumption and biofuel. And this, in turn,
creates opportunities for the small farmer."
2. NEWS ON ENVIRONMENTAL AND SOCIAL CONSIDERATIONS FOR
SUSTAINABLE PRODUCTION OF BIOFUELS



2.1 EU states handed ambitious renewable energy targets
Euractiv.com
24 January 2008

The European Commission put forward ambitious targets yesterday (23 January) to
boost the EU's overall consumption of renewable energies to 20% by 2020. But while
the plans to promote technologies such as solar and wind were largely
welcomed, Brussels faces widespread criticism over controversial biofuels targets.

Background:

Other related news

      Wrap-up: reactions to EU climate and energy package
      Commission defends biofuels in face of mounting criticism
      Commission scientists blast EU biofuels policy
      Industry, governments criticise renewables trading plan
      EU seeks flexibility on renewable energy trade

In March 2007, EU leaders committed to increasing the share of renewable energies
in the EU's final energy consumption to 20% by 2020, and promised to up the use of
biofuels in transport to 10% by the same date.

Since then, the Commission has been charged with formulating policy proposals to
reach the targets, triggering a flurry of stakeholder activity.

In the weeks leading up to the publication of the proposals, controversy surrounded
the Commission's plans to promote renewables through the trading of guarantees of
origin (GOs - EurActiv 16/01/08), and the sustainability of the biofuels target was
questioned by the Commission's own scientists (EurActiv 18/01/08).

Issues:

Differentiated targets for EU member states

A proposal for a new EU directive       , published on 23 January, mandates each
member state to increase its share of renewable energies - such as solar, wind or
hydro - in an effort to boost the EU's share from 8.5% today to 20% by 2020.

A separate target to increase biofuels use to 10% of transport fuel consumption is to
be achieved by every country as part of the overall EU objective.

To achieve these objectives, every nation in the 27-member bloc is required to
increase its share of renewables by 5.5% from 2005 levels, with the remaining
increase calculated on the basis of per capita gross domestic product (GDP). EU
countries are free to decide their preferred 'mix' of renewables in order to take
account of their different potentials, but must present national action plans
(NAPs) outlining their strategies to the Commission by 31 March 2010. The plans will
need to be defined along three sectors: electricity, heating and cooling and
transport.

he Commission has also set a series of interim targets, in order to ensure steady
progress towards the 2020 targets:

      25%   average   between   2011   and   2012;
      35%   average   between   2013   and   2014;
      45%   average   between   2015   and   2016, and;
      65%   average   between   2017   and   2018.

While only the 2020 target is legally binding, a senior Commission official on 22
January said that the Commission could pursue earlier legal action in cases where a
member state's progress is so limited that it is clear the final target cannot be
reached.

Virtual power flows

The Commission's proposal allows for the virtual trade in renewable energies
involving Guarantees of Origin (GOs), which certify the renewable orgin of
electricity produced. This provision already features in existing EU renewables
legislation (see EurActiv's LinksDossier), but has hardly been utilised, according to
the Commission.

Under the system, member states may invest in renewable energy production in
another member state in exchange for GOs, which can be counted towards the
renewables target. But the Commisson has attached the condition that a member
state must have already reached its own interim target before being allowed to
receive investments and transfer GOs to another member state.

Physical trade in renewable energies is permitted and encouraged in the EU's internal
market, but currently accounts for less than 6% of the electricity traded between EU
member states, according to the European Renewable Energy Council (EREC).

Buildings and district heating

While the focus of the directive is on the promotion of large scale renewable energy
installations, member states are nevertheless requested to use "minimum levels of
energy from renewable sources in all new or refurbished buildings", and the text
makes provisions for the mutual recognition of certifications for technicians who
install renewable technologies in buildings (see also our LinksDossier on EU buildings
legislation).

Architects and planners are also to benefit from member state 'guidance' when
planning new constructions, while local and regional administrative bodies should be
required "to consider the installation of equipment and systems for the use of
heating, cooling and electricity from renewable sources and for district heating and
cooling when planning, designing, building and refurbishing industrial or residential
areas".

Grid access

Many smaller producers of renewable energy argue that a lack of transparency and
blocked access to energy grids are preventing them from competing on the market
(EurActiv 06/07/07).

The text seeks to address the problem by requesting member states to ensure that
the transmission and distribution system operators provide "priority access to the
grid system of electricity produced from renewable energy sources."

Biofuels and sustainability

Brussels has come under acute pressure from green politicians, NGOs and the
scientific community to provide robust sustainability criteria to ensure that the 10%
biofuels target does not lead to ecosystem loss, deforestation,
population displacement, food price increases and even higher CO2 output.

The Commission's text includes the following criteria:

      Land use - old forest with no or limited human intervention cannot be used
       for biofuels cultivation, nor can 'highly biodiverse grasslands', or lands with a
       'high carbon stock' like wetlands or 'pristine peatlands';
      CO2 impact - the overall greenhouse gas (GHG) savings from biofuels
       production must be at least 35% in order for cultivation to be considered
       sustainable.

The Commission will put forward sustainability criteria for energy use of biomass by
the end of 2010.

Paying the bill

Revised state aid guidelines         were published along with the renewables proposal,
paving the way for an increase in state funds to the renewable energy sector,
including for biofuels producers, whereby the Commission's sustainability criteria will
be tied in with state aid eligibility.

In order to qualify for state aid, projects must in general have excessively high
investment costs, with companies that want to go beyond community environmental
requirements being particularly eligible for subsidies.

Much of the state support envisioned by the Commission can be handed out in the
form of tax breaks. The new guidelines do not, however, propose a revision of value
added tax (VAT) schemes, despite previous calls for new 'green' VAT rules by France
and the UK (EurActiv 23/07/07).

The Commission predicts that the energy and climate package as a whole (see also
EurActiv's related coverage ) will cost less than 0.5% of the EU's GDP. The
Commission has also repeatedly cited the 'cost of inaction' made in the Stern report
(EurActiv 31/10/06), and argues that rising oil and gas prices mean that gains from
promoting renewables will be 'much higher' than current Commission calculations.

Positions:

Oliver Schäfer, Policy Director of the European Renewable Energy Council
(EREC), told EurActiv that the renewables proposal "looks pretty good now",
following in particular changes made to the renewables trading structure and
conditions. EREC, along with Spain, Germany and other member states, had raised
serious objections to an earlier draft of the directive (EurActiv 16/01/08).

Senior members of the Commission told journalists in Brussels on 22 January that
the changes to the renewables trading regime were made as a result of internal
discussions within the EU executive, and not in direct response to industry and
member state pressure.

The European Solar Thermal Industry Federation (ESTIF) welcomed the
proposal enthusiastically. "For the first time, an EU legislative proposal has the
explicit purpose of supporting all renewables, including solar heating and cooling",
said ESTIF President Gerhard Rabensteiner in a statement.

Makers of wind power turbines also appeared satisfied, with the European Wind
Energy Association (EWEA) saying the Commission had "provided a powerful
response to the imminent energy and climate crisis". The organisation predicts that
wind energy will be "the biggest contributor" to the targets.

Reactions to the biofuels target and to the sustianability criteria were much less
favourable, however, with a number of green groups slamming the plans.
The Greens in the Parliament have promised to "get rid" of the 10% target in the
upcoming negotiations. Green MEP Claude Turmes called the targets "nonsense".

During his presentation of the proposals on 23 January, EU Commission
President José Manuel Barroso said that the criteria put forward by the
Commission will foster the promotion of international sustainability standards in
biofuels trade where previously none have existed. The safeguards are "simple
enough to be workable, robust enough to be credible", he said.

Latest & next steps:

      The proposal is now forwarded to the EU Council and Parliament for approval.
      1st half 2009: Target date for the adoption of the legislation.
      31 March 2010: Deadline for EU states to present National Action Plans
       (NAPs) on renewables.




2.2 Q&A: European Commission climate change laws
The Times
24 January 2008

What has been announced?
The European Commission has presented draft laws designed to tackle climate
change by creating binding targets to reduce carbon dioxide emissions across the EU
by 20 per cent by 2020, using 1990 levels as a baseline.

As a means of achieving this, the Commission wants to boost energy production from
renewable sources to 20 per cent of the EU total, from the current level of 8.5 per
cent. It also aims to ensure that 10 per cent of all vehicle fuel comes from biofuels
by 2020.

Individual targets have been set for each member state to achieve these broader
goals. The plan must still be approved by members and the European Parliament – a
long-winded process that is unlikely to be achieved before next year. Much horse-
trading and lobbying is likely in the interim.

How will the cuts be achieved?

Europe’s emissions trading system, under which industries buy or sell emissions
credits covering different greenhouse gases, is to be strengthened and expanded. It
will gradually encompass all big industries, such as chemical, aluminium and
aviation, as well as power and steel. Most immediately, it is being expanded from
dealing only with carbon dioxide to incorporate two other greenhouse gases, nitrous
oxide and perfluorocarbons.

Big polluters will eventually pay billions of dollars per year in emissions trading
charges. Governments will use this to bolster the development of clean energy.
About 40 per cent of total emissions are to be covered by this scheme.

Any other initiatives?

Countries that are unable to hit their targets will be permitted to buy credits from
other member states to meet them. The Commission also wants to create economic
incentives to assist the capture and storage of carbon. State aid for green power
generation schemes will also be permitted.

How much will all of this cost?

The Commission estimates that the overall cost will be 0.5 per cent of GDP – or €60
billion (£45 billion) a year across the EU. For individual consumers, that amounts to
about €3 a week. The Commission expects the measures to push up electricity prices
in Britain by 10-15 per cent by 2020, up to three times as much as the European
average. The cost to Britain will probably be relatively high because it has been set
very ambitious targets.

What about the benefits?

The community claims that the cost of inaction is far higher. It says the plan will
reduce the need to import energy worth €50 billion per year and also help to avert
the costs of climate change, which could exceed 20 per cent of GDP. It also claims
that the package will make Europe the centre of a new global clean technology
industry that could create a million jobs by 2020.
Aren’t biofuels bad news?

Biofuels have been blamed for contributing to the problem of climate change by
causing deforestation and forcing agricultural land in developing countries out of use
for food production. The community says it will introduce strict criteria to prevent
this, but it has admitted that there are holes in its proposals. One problem of
certification yet to be solved is how to ensure that knock-on effects are taken into
account, such as when a bio-firm takes over agricultural land and the people who
used to farm it have to move into forest areas to grow their food.




2.3 Commission defends biofuels in face of mounting criticism
Euractiv.com
21 January 2008

The EU's energy and agriculture commissioners have joined hands in defending the
bloc's commitment to biofuels, following calls by a UK parliamentary committee for a
moratorium on the promotion of the controversial alternative to fossil fuels.

Brief News:

The UK House of Commons Environmental Audit Committee (EAC) today (21
January) joined a growing chorus of criticism over the promotion of biofuels for use
in the EU's transport mix, arguing against any further promotion of the fuels at EU
level.

Despite their ability to offset greenhouse gas (GHG) emissions from road transport,
"at present most biofuels have a detrimental impact on the environment overall",
said the EAC's chairman Tim Yeo.

The EAC's conclusions reflect those made by the Commission's own scientists
(EurActiv 18/01/08), who have questioned the environmental sustainability of
growing crops for energy use. Environmental NGOs have strongly criticised the EU's
10% goal, calling for tougher safeguards or even an outright moratorium on
production (EurActiv 11/01/08).

But EU Energy Commissioner Andris Piebalgs said that the Commission "strongly
disagrees" with the EAC's conclusion. Biofuels are "delivering significant greenhouse
gas reductions" compared to oil, Piebalgs said in a statement, which lists a number
of arguments to support the EU's policy.

"The key contribution of biofuels to the sustainability of the transport sector should
not make us forget its other benefits which are as important as the environmental
ones, namely: reducing our dependency on imported oil; providing a development
opportunity for poor countries and paving the way for second-generation
biofuels", read the statement, published on 21 January.
However, despite an apparent 'U-turn' on certain controversial policy approaches for
promoting renewable energies such as solar and wind, the Commission is unlikely to
change course on biofuels.

EU Agriculture Commissioner Mariann Fischer Boel told the German food industry on
Friday (18 January) that the policy is here to stay, arguing that the goals are
"attainable" and "necessary if we're serious about energy security and climate
change".

The Commission, which will unveil its proposal on biofuels on 23 January as part of a
wider climate and energy 'package', is trying to assuage criticism of its policy by
making assurances that "robust sustainability standards and mechanisms to prevent
damaging land use change" will feature as part of the proposals.




2.4 Biofuels protectionism trumps climate concerns
Reuters
17 January 2008

Despite world concerns about global warming and the impact of biofuel production on
food prices, policy makers have done little to boost international trade of cheaper
and more environmentally friendly fuels for consumers, experts said.

Import tariffs and trade barriers have prevented, for example, an increase in cane-
based ethanol exports from Brazil, the world's most competitive producer of the
biofuel.

Shipments are actually expected to be lower in 2008 than last year. In Europe,
biodiesel producers have been hit by an increase in U.S. imports, which benefit from
subsidies if they are blended with mineral diesel.

To counterattack, the EU bloc may impose countervailing duties, industry leaders
said. The EU has also been affected by large volumes of Argentine biodiesel at cheap
prices, which are encouraged by preferential taxes.

The product is charged a 5 percent tariff by Argentina's government, while edible oil
exports have a 30 percent duty. "Some countries are trying to solve a world
problem, which is global warming and climate change, just with national solutions,"
said the head of Brazil's Sugar Cane Industry Union (Unica), Marcos Jank, at the
Reuters Global Agriculture and Biofuel Summit.

According to Unica, cane-based fuel has higher productivity than other feedstocks.
Sugar cane yields seven liters of ethanol per hectare compared with three liters with
corn. Production costs are lower, and energy efficiency -- amount of energy used in
the process versus energy resulting -- is five times higher with cane than with corn,
Unica said.

Moreover, its impact on food prices is much more limited than the one caused by
corn or wheat. Almost a third of the next U.S. crop may be turned into fuel,
increasing upward pressure on food inflation. But tariffs in some of the world's
largest fuels markets like the U.S. and Europe will limit ethanol exports.

Shipments from Brazil are to drop this year to 3.4 billion liters, down from 3.8 billion
liters in 2007, Datagro consultants said. GLOOM PERSPECTIVES Unica argues its
position is not self-promotional as cane-based ethanol could come also from Asia,
Africa or South America.

More than 100 countries -- most of them poor nations -- have natural conditions to
grow cane. "Europe is trying to subsidize their farmers to produce ethanol from beet
and wheat instead of buying ethanol from abroad. The same happens in the U.S.
Most of the ethanol there will come from corn, probably from biomass in the future,
but not imported (ethanol)," Jank said.

"We believe that if these countries consider to import more from developing
countries, the energy and environmental balance would be much better, and costs
would be much lower." But signals from these countries point to the opposite
direction.

The chairman of the U.S. House Agriculture Committee, Rep. Collin Peterson, said on
Tuesday tax credits and tariffs on ethanol would have to be maintained to create the
necessary conditions for the development of cellulosic ethanol. "We are hoping that
we won't have any changes in the tax or tariffs any time soon," he said. Brazilian
ethanol is charged with a 54-cent-a-gallon tariff to enter the U.S. market.

This makes direct sales possible only on specific and uncommon occasions,
depending on low prices in Brazil and high prices in the United States. And
perspectives remain negative as the U.S. passed in December its Energy Bill, which
sets a target for biofuel use of 36 billion gallons -- none of them imported, in
principle.

"They (U.S.) won't open their market. They will stick to its import tariff and create a
quota, and then administrate this quota under geopolitical criteria," said the
president of Brazil's Datagro consultants, Plinio Nastari.

Wallace Tyner, professor at Purdue University in West Lafayette, Indiana, said it
would be necessary either alter the mandate or change the tariff for US to meet its
goal.

"Brazil and a lot of Central American countries have a capacity to expand pretty
quickly their ethanol production if they get signals that there's a market for it," Tyner
said.



2.5 OECD calls biofuel tariffs "wasteful" and "destorting"; calls for open
markets
Biopact.org
14 January 2008

Governments may be getting a clearer picture of the shortcomings of current biofuel
policies but the likelihood they can remedy any wrongs looks far from certain, a
senior OECD official said on Monday.
Loek Boonekamp, a division head in the OECD's Agro-food Trade and Markets
Division, singled out price-supporting trade barriers, erected by Europe and the
United States, as one example of "wasteful" and "distorting" steps taken to date.

But even governments aware of policy weaknesses would find it very hard to
backtrack on such supportive policies in the face of powerful lobby groups.

"I'm not very optimistic that because we say that the policies are bad and wasteful
that governments will go away and do something else," he told the Reuters Global
Agriculture and Biofuel Summit in Paris.

"Support policies generate vested interests...once these vested interests are there
and these support policies are well entrenched, it is incredibly difficult to get rid of
this," he said.

Governments need to free up trade conditions for biofuels and ingredients used to
create them to ensure production on a global scale makes more economic sense, he
said.

In September, the OECD published a report suggesting that biofuels had far fewer
environmental and economic benefits than many people think.

Another barrier to fair trade in biofuels would be the sustainability criteria the EU is
likely to impose on the fuels. The wealthy West protects its agriculture already with
subsidies and trade barriers, making it difficult for poorer farmers to compete.
Imposing strict sustainability criteria would be a non-tariff barrier to trade, making
the situation worse.

Earlier, two trade and subsidy experts presented a paper to the OECD in which they
call subsidies and tariffs damaging and counter-productive. They called for an
abandonment of the rules, but warned that this might not happen soon.



2.6 GLOBAL: Don't impose food price controls, warns World Bank
IRINnews.org of the UN
9 January 2008

Food prices have risen nearly 75 percent within a decade and will continue to do so,
hurting the poor, warned the World Bank's annual Global Economic Prospects 2008,
which suggested that governments ease control over food prices and provide
targeted safety nets.

Prices have shot up partly because of the "stepped-up" use of food crops for biofuels
and partly because of other factors like rapid income growth in developing countries,
high fertiliser prices, low stocks, and droughts, according to the World Bank.

"Agricultural prices are expected to remain nearly flat at high levels in 2008, as
biofuels production continues to ramp up in response to consumption mandates and
production subsidies, drawing resources from other crops," said the report.

Many countries have liberalised or relinquished control over food prices, the Bank
noted, but countries without safety net programmes "will feel pressure" to impose
price controls or reintroduce government controls to provide assistance to the poor.
"This would undo successful policy reforms and send a negative message to the
private sector."

The World Bank said some countries had imposed export bans to contain domestic
food price inflation, but "Such bans unfairly penalise the producers of these crops
and may encourage smuggling and corruption." According to the Economist
magazine, Venezuela and Russia recently imposed controls on food prices.

John Hoddinott, a senior research fellow in the food consumption and nutrition
division of the Washington-based International Food Policy Research Institute
(IFPRI), pointed out that while controlling or subsidising food prices is a "seductive
policy option", the "reality is more complicated".

"Subsidy schemes are horrifically expensive and as a result can crowd out other
government expenditures, such as on primary health care and education that also
directly benefit the poor," he explained. A large part of the subsidy often ended up
going to non-poor households, while well-targeted cash transfers could help those
who really needed them, Hoddinott added.

Past periods of food price increases were temporary and lasted only two or three
years, the Bank's report noted, but the current price increases were tied to global
energy prices and were expected to continue for several years. The report
acknowledged that most countries would not be able to shelter their consumers from
them.

"Private traders imported food grains during times of domestic shortfall, providing
needed supplies and price stabilisation, as well as removing a financial burden from
the government."

The report cited Bangladesh as an example of the success of open market food
policies. "It has transformed its agricultural sector into one of the most productive in
South Asia. The country is largely self-sufficient in rice, a basic staple, and is an
emerging exporter of high-value agricultural products. One of the keys to this
success was the government's decision to liberalise food imports in the early 1990s.

"By 2000, the private sector was importing 100 percent of imported food, and the
government reoriented its large public food distribution system away from mass
distribution in favour of a targeted safety net programmes for the poor."

The report suggested that "Such a response would be effective in the current
situation of high food prices, but a complicating factor is that part of the current
price increases might be more persistent than in the past."

Siwa Msangi, a research fellow with IFPRI's environment and production technology
division, said countries might also have to resort to other relief measures. "This
could be in form of temporary control over prices of certain food essentials, as
Morocco had done last year - it reduced import tariffs to control the price of bread
during Ramadan - which helped the poor consumers and did not discourage
producers."
Situation could have spin-offs

Net importers of cereals and other food essentials, particularly sub-Saharan African
countries, were the most affected, added IFPRI's Msangi.

The World Bank report pointed out that "Price increases for vegetable oils and grains
primarily affect low-income countries, with the rise in prices since the end of 2004
leading to a terms-of-trade loss equivalent to 0.5 percent of GDP [gross domestic
product]. This represents 1 percent of GDP in 29 countries, and nearly 5 percent of
GDP for the most affected country, Eritrea."

Msangi said developing countries that were largely dependant on agriculture should
take advantage of the high food price environment to invest in food production.
"They can pump money into research, developing marketing infrastructure for
farmers and even providing fertiliser subsidies."

The emphasis on subsidising ethanol production in the US might shift support from
cash crops like cotton, which could help affected producers like Mali and Tanzania,
who have borne the brunt of American subsidies for its local producers for many
years, Msangi pointed out.

According to a joint report by the FAO and the Organisation for Economic
Cooperation and Development (OECD), Agricultural Outlook 2007-2016, expanding
cereal use for ethanol production has led to reduced acreage planted to oilseeds,
particularly in the US, in favour of maize.

"In the US ... maize use for fuel production, which has doubled from 2003, will
increase from some 55 million tonnes, or one-fifth of maize production in 2006, to
110 million tonnes or 32 percent" by 2016.




2.7 FAO calls for steps to boost farm output in poor countries to counter
soaring food prices; points to Malawi's success
Biopact
17 December 2007

The UN's FAO is urging governments and the international community to implement
immediate measures in support of poor countries hit hard by dramatic food price
increases. It calls for steps to improve poor farmers' access to inputs like seeds,
fertilizer and other inputs to increase local crop production. The FAO refers to the
success in Malawi's farm sector, which succeeded in turning itself around from being
a food importer to producing a huge excess of food as a result of simple
interventions, proving that the current situation can be altered.

Biopact thinks the crisis offers an exceptional opportunity to point to the roots of the
many problems experienced by developing countries:

      tariffs and subsidies for biofuels in the US and the EU, which take food off the
       market for the production of inefficient biofuels like corn ethanol or rapeseed
       biodiesel;
      the contrary example of Brazil's ethanol sector, showing that highly efficient
       biofuels can be produced without increasing food prices (the international
       price of sugar has declined despite record sugarcane ethanol output);
      the catastrophic effect of political crises in developing countries, leading to
       the destruction of the agricultural sector and food insecurity; over the long
       term, creating political stability is the absolute priority in the fight against
       hunger
      bad governance and corruption by developing country governments and local
       economic elites, who neglect their own farm sectors and favor imports from a
       small number of multinationals (some have called bad governance the single
       biggest immediate cause of hunger)
      the emblematic success of Malawi's super harvest, showing that simple
       interventions in the farm sector can turn a hungry country into a major food
       exporter in a single year's time; Malawi kicked out both the World Bank's
       experts (who were against state support for the farm sector) and NGOs who
       advocated against the use of fertilizers; instead, Malawi launched a national
       fertilizer subsidy campaign, with a massive output of food as a consequence;
       the example shows agriculture in Africa can become self-sufficient and
       produce a vast excess of food, if only very simple interventions are
       implemented

But these factors point to what the situation should be, not to what it actually is
today. Currently 37 countries worldwide are facing food crises due to conflict and
disasters, the FAO says. In addition, food security is being adversely affected by
unprecedented price hikes for basic food, driven by historically low food stocks,
droughts and floods linked to climate change, high oil prices and growing demand for
biofuels. High international cereal prices have already sparked food riots in several
countries.

In its November issue of Food Outlook, FAO estimated that the total cost of imported
foodstuffs for Low Income Food Deficit Countries (LIFDCs) in 2007 would be some 25
percent higher than the previous year, surpassing US$ 107 million.

Urgent and new steps are needed to prevent the negative impacts of rising food
prices from further escalating and to quickly boost crop production in the most
affected countries. Without support for poor farmers and their families in the
hardest-hit countries, they will not be able to cope. Assisting poor vulnerable
households in rural areas in the short term and enabling them to produce more food
would be an efficient tool to protect them against hunger and undernourishment.
                                                   FAO Director-General Jacques Diouf

Note that Diouf does not blame biofuels as such, on the contrary. Recently he said:
Much of the current debate on bioenergy [...] obscures the sector's huge potential to
reduce hunger and poverty.

If we get it right, bioenergy provides us with a historic chance to fast-forward growth
in many of the world's poorest countries, to bring about an agricultural renaissance
and to supply modern energy to a third of the world's population.
                                                    FAO Director-General Jacques Diouf

The real problem is with the current geographical distribution of bioenergy
production: European and American farmers produce biofuels from food in a highly
inefficient way, from crops that do not yield much energy. They can only do so
because they are protected by import tariffs and by massive subsidies. For this
reason, Diouf and many others have called for the abandonment of these trade and
market distorting factors. Biofuels should be produced by those who can make them
in an efficient manner from high yielding energy crops, without impacting food
prices. That is: countries in the South, like Brazil (sugar prices have declined, despite
record sugarcane ethanol production). In short, we need a major rethink of the
biofuels sector - the case for a 'Biopact' has never been stronger.

Short-term support
The FAO is calling for urgent action to provide small farmers in LIFDCs that depend
heavily on food imports, with improved access to inputs like seeds, fertilizer and
other inputs to increase, in particular, local crop production.

Within countries, improved access to these inputs could be provided by issuing poor
farmers with vouchers to buy seeds, fertilizer and other inputs for major staple
crops, which should increase local food production. Such steps could help to alleviate
the persistent threat of severe undernourishment of millions of people, FAO said.

FAO will support a catalytic model programme in close cooperation with the private
sector. At the same time, FAO aims to assist countries in mobilising resources
required to strengthen their productive capability, market access and other measures
required for long-term household food security.

Malawi’s success
Some countries like Malawi have proven that it is possible to boost local food
production through the provision of vouchers for farm inputs, the FAO says. The
Malawi programme has over the last two years produced spectacular results whereby
maize production in 2006/07 was one million metric tonnes higher than national
maize requirements, Diouf says:

The value of the extra production was double that of the investment provided. Many
small-scale farmers have benefited and have increased production for their own
consumption. The Malawi success could be replicated by other countries facing a very
difficult food production environment.

Short-term intervention will by no means replace medium and long-term
investments for enhancing the production capacity in the target countries, FAO said.

"On the contrary, we want the pressure on governments to finance expensive food
imports to be eased so they can focus on long-term solutions. Short-term
investments have to be accompanied immediately with measures to ensure water
control, increase rural infrastructure and improve soil fertility and guarantee long-
term sustainability of food production," Diouf said.

FAO will fund a model programme of interventions from resources put at its disposal
by member countries and will encourage national governments, international
institutions and other donors to replicate and expand successful interventions in line
with ongoing international initiatives.

References:
FAO: FAO calls for urgent steps to protect the poor from soaring food prices -
December 17, 2007.
2.8 Cheap no more - Rising incomes in Asia and ethanol subsidies in
America have put an end to a long era of falling food prices
The Economist
By Gerrit Buntrock
6 December 2007

ONE of the odder features of last weekend's vote in Venezuela was that staple foods
were in short supply. Something similar happened in Russia before its parliamentary
election. Governments in both oil-rich countries had imposed controls on food prices,
with the usual consequences. Such controls have been surprisingly widespread—a
knee-jerk response to one of the most remarkable changes that food markets,
indeed any markets, have seen for years: the end of cheap food.

In early September the world price of wheat rose to over $400 a tonne, the highest
ever recorded. In May it had been around $200. Though in real terms its price is far
below the heights it scaled in 1974, it is still twice the average of the past 25 years.
Earlier this year the price of maize (corn) exceeded $175 a tonne, again a world
record. It has fallen from its peak, as has that of wheat, but at $150 a tonne is still
50% above the average for 2006.

As the price of one crop shoots up, farmers plant it to take advantage, switching land
from other uses. So a rise in wheat prices has knock-on effects on other crops. Rice
prices have hit records this year, although their rise has been slower. The
Economist's food-price index is now at its highest since it began in 1845, having
risen by one-third in the past year.

Normally, sky-high food prices reflect scarcity caused by crop failure. Stocks are run
down as everyone lives off last year's stores. This year harvests have been poor in
some places, notably Australia, where the drought-hit wheat crop failed for the
second year running. And world cereals stocks as a proportion of production are the
lowest ever recorded. The run-down has been accentuated by the decision of large
countries (America and China) to reduce stocks to save money.

Yet what is most remarkable about the present bout of ―agflation‖ is that record
prices are being achieved at a time not of scarcity but of abundance. According to
the International Grains Council, a trade body based in London, this year's total
cereals crop will be 1.66 billion tonnes, the largest on record and 89m tonnes more
than last year's harvest, another bumper crop. That the biggest grain harvest the
world has ever seen is not enough to forestall scarcity prices tells you that something
fundamental is affecting the world's demand for cereals.

The meat of the question
Two things, in fact. One is increasing wealth in China and India. This is stoking
demand for meat in those countries, in turn boosting the demand for cereals to feed
to animals. The use of grains for bread, tortillas and chapattis is linked to the growth
of the world's population. It has been flat for decades, reflecting the slowing of
population growth. But demand for meat is tied to economic growth (see chart 1)
and global GDP is now in its fifth successive year of expansion at a rate of 4%-plus.
Higher incomes in India and China have made hundreds of millions of people rich
enough to afford meat and other foods. In 1985 the average Chinese consumer ate
20kg (44lb) of meat a year; now he eats more than 50kg. China's appetite for meat
may be nearing satiation, but other countries are following behind: in developing
countries as a whole, consumption of cereals has been flat since 1980, but demand
for meat has doubled.

Not surprisingly, farmers are switching, too: they now feed about 200m-250m more
tonnes of grain to their animals than they did 20 years ago. That increase alone
accounts for a significant share of the world's total cereals crop. Calorie for calorie,
you need more grain if you eat it transformed into meat than if you eat it as bread: it
takes three kilograms of cereals to produce a kilo of pork, eight for a kilo of beef. So
a shift in diet is multiplied many times over in the grain markets. Since the late
1980s an inexorable annual increase of 1-2% in the demand for feedgrains has
ratcheted up the overall demand for cereals and pushed up prices.

Because this change in diet has been slow and incremental, it cannot explain the
dramatic price movements of the past year. The second change can: the rampant
demand for ethanol as fuel for American cars. In 2000 around 15m tonnes of
America's maize crop was turned into ethanol; this year the quantity is likely to be
around 85m tonnes. America is easily the world's largest maize exporter—and it now
uses more of its maize crop for ethanol than it sells abroad.

Ethanol is the dominant reason for this year's increase in grain prices. It accounts for
the rise in the price of maize because the federal government has in practice waded
into the market to mop up about one-third of America's corn harvest. A big
expansion of the ethanol programme in 2005 explains why maize prices started
rising in the first place.

Ethanol accounts for some of the rise in the prices of other crops and foods too.
Partly this is because maize is fed to animals, which are now more expensive to rear.
Partly it is because America's farmers, eager to take advantage of the biofuels
bonanza, went all out to produce maize this year, planting it on land previously
devoted to wheat and soyabeans. This year America's maize harvest will be a jaw-
dropping 335m tonnes, beating last year's by more than a quarter. The increase has
been achieved partly at the expense of other food crops.
This year the overall decline in stockpiles of all cereals will be about 53m tonnes—a
very rough indication of by how much demand is outstripping supply. The increase in
the amount of American maize going just to ethanol is about 30m tonnes. In other
words, the demands of America's ethanol programme alone account for over half the
world's unmet need for cereals. Without that programme, food prices would not be
rising anything like as quickly as they have been. According to the World Bank, the
grain needed to fill up an SUV would feed a person for a year.

America's ethanol programme is a product of government subsidies. There are more
than 200 different kinds, as well as a 54 cents-a-gallon tariff on imported ethanol.
That keeps out greener Brazilian ethanol, which is made from sugar rather than
maize. Federal subsidies alone cost $7 billion a year (equal to around $1.90 a
gallon).

In theory, what governments mandate, they can also scrap. But that seems unlikely
with oil at the sort of price that makes them especially eager to promote alternative
fuels. Subsidies might be trimmed, of course, reducing demand occasionally; this is
happening a bit now. And eventually, new technologies to convert biomass to liquid
fuel will replace ethanol—but that will take time. For the moment, support for the
ethanol programme seems secure. Hillary Clinton and John McCain used to be
against ethanol subsidies, but have changed their minds. Russia and Venezuela are
not the only countries that like to meddle in food markets for political reasons. So
demand for grain will probably remain high for a while. Demand, though, is only one
side of the equation. Supply forms the other. If there is a run of bumper harvests,
prices will fall back; if not, they will stay high.

Harvests can rise only if new land is brought into cultivation or yields go up. This can
happen fairly quickly. The world's cereal farmers responded enthusiastically to price
signals by planting more high-value crops. And so messed-up is much of the rich
world's farming systems that farmers in the West have often been paid not to grow
crops—something that can easily be reversed, as happened this year when the
European Union suspended the ―set aside‖ part of its common agricultural policy.
Still, there are limits to how much harvests can be expanded in the short term. In
general, says a new report by the International Food Policy Research Institute
(IFPRI), which is financed by governments and development banks, the response
tends to be sticky: a 10% rise in prices yields a 1-2% increase in supply.

In the longer run, plenty of new farmland could be ploughed up and many
technological gains could be had. But much of the new land is in remote parts of
Brazil, Russia, Kazakhstan, the Congo and Sudan: it would require big investments in
roads and other infrastructure, which could take decades—and would often lead to
the clearing of precious forest. Big gains could be had if genetically modified foods
were brought into production or if new seed varieties were planted in Africa. But
again, that will take time. Moreover, GM foods will not live up to their promise unless
they shed the popular suspicion that dogs them, especially in Europe. And some of
the new land—dry, marginal areas of Africa, Brazil and Kazakhstan—could be
vulnerable to damage from global warming. By some measures, global warming
could cut world farm output by as much as one-sixth by 2020. No less worryingly,
high oil prices would depress the use of oil-based fertilisers, which have been behind
much of the increase in farm production during the past half-century.

It is risky to predict long-run trends in farming—technology in particular always turns
out unexpectedly—but most forecasters conclude from these conflicting currents that
prices will stay high for as much as a decade. Because supplies will not match
increases in demand, IFPRI believes, cereal prices will rise by between 10% and 20%
by 2015. The UN's Food and Agriculture Organisation's forecast for 2016-17 is
slightly higher. Whatever the exact amount, this year's agflation seems unlikely to
be, as past rises have been, simply the upward side of a spike.

If prices do not fall back, this will mark a break with the past. For decades, prices of
cereals and other foods have been in decline, both in the shops and on world
markets. The IMF's index of food prices in 2005 was slightly lower than it had been
in 1974, which means that in real terms food prices fell during those 30 years by
three-quarters (see chart 2). In the 1960s food (including meals out) accounted for
one-quarter of the average American's spending; by 2005 the share was less than
one-seventh.

In other words, were food prices to stay more or less where they are today, it would
be a radical departure from a past in which shoppers and farmers got used to a
gentle decline in food prices year in, year out. It would put an end to the era of
cheap food. And its effects would be felt everywhere, but especially in countries
where food matters most: poor ones.

A blessing and a curse
If you took your cue from governments, you would conclude that dearer food was
unequivocally a bad thing. About a score of countries have imposed food-price
controls of some sort. Argentina, Morocco, Egypt, Mexico and China have put
restraints on domestic prices. A dozen countries, including India, Vietnam, Serbia
and Ukraine, have imposed export taxes or limited exports. Argentina and Russia
have done both. In all these places governments are seeking to shelter their people
from food-price rises by price controls. But dearer food is not a pure curse: it
produces winners as well as losers.

Obviously, farmers benefit—if governments allow them to keep the gains. In
America, the world's biggest agricultural exporter, net farm income this year will be
$87 billion, 50% more than the average of the past ten years. The prairie farmers of
the Midwest are looking forward to their Caribbean cruises. Other beneficiaries are in
poor countries. Food exporters such as India, South Africa and Swaziland will gain
from increased export earnings. Countries such as Malawi and Zimbabwe, which
used to export food but no longer do so, also stand to gain if they can boost their
harvests. Given that commodity prices have been falling for so long in real terms,
this would be an enormous relief to places that have suffered from a relentless
decline in their terms of trade.

In emerging markets an income gap has opened up between cities and countryside
over the past few years. As countries have diversified away from agriculture into
industry and services, urban wages have outstripped rural ones. Income inequality is
conventionally measured using a scale running from zero to one called the Gini
coefficient. A score of 0.5 is the mark of a highly unequal society. The Asian
Development Bank reckons that China's Gini coefficient rose from 0.41 in 1993 to
0.47 in 2004. If farm incomes in poor countries are pushed up by higher food prices,
that could mitigate the growing gap between city and countryside. But will it?
Guess who loses
According to the World Bank, 3 billion people live in rural areas in developing
countries, of whom 2.5 billion are involved in farming. That 3 billion includes three-
quarters of the world's poorest people. So in principle the poor overall should gain
from higher farm incomes. In practice many will not. There are large numbers of
people who lose more from higher food bills than they gain from higher farm
incomes. Exactly how many varies widely from place to place.

Among the losers from higher food prices are big importers. Japan, Mexico and Saudi
Arabia will have to spend more to buy their food. Perhaps they can afford it. More
worryingly, some of the poorest places in Asia (Bangladesh and Nepal) and Africa
(Benin and Niger) also face higher food bills. Developing countries as a whole will
spend over $50 billion importing cereals this year, 10% more than last.

Rising prices will also hurt the most vulnerable of all. The World Food Programme,
the main provider of emergency food aid, says the cost of its operations has
increased by more than half in the past five years and will rise by another third in
the next two. Food-aid flows have fallen to their lowest level since 1973.
In every country, the least well-off consumers are hardest hit when food prices rise.
This is true in rich and poor countries alike but the scale in the latter is altogether
different. As Gary Becker, a Nobel economics laureate at the University of Chicago,
points out, if food prices rise by one-third, they will reduce living standards in rich
countries by about 3%, but in very poor ones by over 20%.

Not all consumers in poor countries are equally vulnerable. The food of the poor in
the Andes, for example, is potatoes; in Ethiopia, teff: neither is traded much across
borders, so producers and consumers are less affected by rising world prices. As the
World Bank's annual World Development Report shows, the number of urban
consumers varies from over half the total number of poor in Bolivia, to about a
quarter in Zambia and Ethiopia, to less than a tenth in Vietnam and Cambodia.

But overall, enormous numbers of the poor—both urban and landless labourers—are
net buyers of food, not net sellers. They have already been hard hit: witness the
riots that took place in Mexico over tortilla prices earlier this year. According to
IFPRI, the expansion of ethanol and other biofuels could reduce calorie intake by
another 4-8% in Africa and 2-5% in Asia by 2020. For some countries, such as
Afghanistan and Nigeria, which are only just above subsistence levels, such a fall in
living standards could be catastrophic.
So it is no good saying ―let them eat cake‖: there are strong welfare arguments for
helping those who stand to lose. But the way you do it matters. In general, it is
better to subsidise poor peoples' incomes, rather than food prices: this distorts price
signals the least and allows farmers to benefit from higher prices. Where it is not
possible to subsidise incomes (because to do so requires a decent civil service), it is
still possible to minimise the unintended consequences if food subsidies are targeted
and temporary. Morocco fixed bread prices (the food of the poor) during Ramadan,
the Muslim month of fasting; at the same time, it cut tariffs on food imports to
increase competition.

But a problem too

In contrast, Russia shows how not to do it. It imposed across-the-board price
controls on milk, eggs, bread and other staples, benefiting everyone whether they
needed help or not. Food is disappearing from shelves and farmers are bearing the
brunt. As Don Mitchell of the World Bank points out, ―if you want to help consumers,
you can do it without destroying your producers but only if you go about it in the
right way.‖ In reality, many of the recent price controls are blatant politicking. About
half the countries that imposed price controls did so before elections or other big
political events. Russia's are due to run out just after next year's presidential
election. Funny, that.

There is one last important knock-on effect of agflation. It is likely to help shift the
balance of power in the world economy further towards emerging markets. Higher
food prices have increased inflation around the world, but by different amounts in
different countries. In Europe and America food accounts for only about one-tenth of
the consumer-price index, so even though food prices in rich countries are rising by
around 5% a year, it has not made a big difference. There have been clucks of
concern from the European Central Bank and a consumer boycott of pasta in Italy,
but that is about all.

In poor countries, in contrast, food accounts for half or more of the consumer-price
index (over two-thirds in Bangladesh and Nigeria). Here, higher food prices have had
a much bigger impact. Inflation in food prices in emerging markets nearly doubled in
the past year, to 11%; meat and egg prices in China have gone up by almost 50%
(although that is partly because pork prices have been pushed up by a disease in
pigs). This has dragged up headline inflation in emerging markets from around 6% in
2006 to over 8% now. In many countries, inflation is at its highest for a decade.
Central bankers are determined to ensure that what could be a one-off shift in food
prices does not create continuing inflation by pushing up wages or creating
expectations of higher prices. So they are tightening monetary policy. China
increased interest rates in August, Chile in July, Mexico in May. The striking thing
about these rises is that they are the opposite of what has been happening in some
rich countries. The Federal Reserve reduced rates by 50 basis points in September
and 25 points in October; the Bank of Canada cut rates this week. The indirect effect
of food-price rises has therefore been to widen the interest-rate differential between
rich and emerging markets.

And all this is going on as the economic balance of power is shifting. Growth in
America and Europe is slowing; China and India are going great guns. Financial
confidence in the West has been shaken by the subprime-mortgage crisis; capital
flows into emerging markets are setting records.
This shift will be tricky to handle. Such transitions always are. The risk is of a bubble
in emerging markets. As Simon Johnson, the IMF'S director of research, wryly notes,
―every bubble starts with a change in the real economy.‖ Food markets are an
obvious place to start. How emerging countries fare—and how poor consumers
cope—depends on their economic policies. The imposition of food-price controls was
not exactly a good start.




2.9 IMF chief economist: biofuels could                 help    cut   farm   subsidies,
protectionism main cause of high food prices
Biopact.org
6 December 2007
The trend toward increasing production of biofuels provides an opportunity to
dismantle agricultural subsidies and tariffs in wealthy countries, according to the
International Monetary Fund’s top economist. Non-governmental organisations and
developing country governments have been calling for farm subsidy and trade reform
for years, to give producers in the South a chance to develop domestic markets.
Biofuels offer an opportunity to bring about this much needed transformation.

Writing in the December issue of the IMF’s Finance & Development magazine, Chief
Economist Simon Johnson looks at how the adoption of biofuels in the EU and the US
is driving up world food prices and how the trend can be curbed. Over the past 12
months, the world has experienced a substantial inflationary shock in the form of
higher food prices, partly fueled by increasing demand for food crops such as corn,
used for biofuels. This shock doesn’t necessarily translate into higher sustained
inflation, Johnson writes; monetary policy in most countries appears to be
responding appropriately. But it will have adverse effects relatively poor urban
residents in low-income countries that depend on imported food.

However, there are two potential major silver linings: direct benefits for farmers in
low-income countries and potential policy space for removing agricultural subsidies in
rich countries. The vast majority of people qualified as 'poor' are farmers in
developing countries. They stand to gain directly from the emerging biofuels
industry.

In the IMF staff’s assessment, a significant part of the latest jump in food prices can
be traced directly to biofuels policy in wealthy countries, Johnson writes.

A key part of this approach to biofuels is agricultural protectionism. A number of
countries, including Brazil, can produce ethanol much cheaper, with a greater saving
of nonrenewable energy and lower emissions, for example, by using sugar. But this
sugar-based ethanol is subject to a prohibitive tariff in the United States (and there
are similar barriers in Europe). - Simon Johnson, IMF Chief Economist

In addition, production subsidies in rich countries, which are intended to encourage
innovation in this sector, seem to have led to excessive entry into the US ethanol
distillery business.

The greatest potential gains of using crops for biofuels are for farmers everywhere,
including the rural sector of poorer countries, Johnson writes.

There is another potential opportunity in this rapidly developing difficult situation,
Johnson writes.

Farm subsidies of various kinds in rich countries have long plagued the international
trading system and currently make it difficult to move forward with further trade
liberalization. Rich countries are reluctant to improve access to their most protected
markets.

With high food prices, subsidies are less compelling and—depending on how they are
structured—may not even pay out when prices are above a certain level, Johnson
writes.

Industrial countries need to seize this moment and eliminate subsidies in such a way
that it is hard to re-impose them later.
Johnson cites the example of the European Union's 'impressive step forward' in
terms of export subsidies for milk. With milk at record-high prices this year, these
subsidies have been suspended. Given the nature of decision making over
agricultural policy, reinstating such subsidies might be difficult.

More recently, the EU also decided to abandon a subsidy for energy crops.

				
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