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.