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S. 1
CONFERENCE ON AGRICULTURAL BIOFUELS
Rising Biofuels Prices – Blessing
or Curse for Food Security?
USDA Global Conference on Agricultural Biofuels
Minneapolis, 20-23 August 2007
S. 2
Interest in the biofuels sector...
USDA CONFERENCE ON BIOFUELS
recent rapid increase and volatility in fossil fuel
prices, and
in parallel, rapid increase and volatility in prices of
some agricultural commodities
– some used as feedstock in biofuel production
– some competing with them for productive resources
S. 3
Food and fuel price
USDA CONFERENCE ON BIOFUELS
indices...
S. 4
Interest in the biofuels sector...
USDA CONFERENCE ON BIOFUELS
recent rapid increase and volatility in fossil fuel
prices, and
in parallel, rapid increase and volatility in prices of
some agricultural commodities
– some used as feedstock in biofuel production
– some competing with them for productive resources
national and international commitments towards
cleaner fuels, which led over 2000-06 period to
– around a 3-fold increase in ethanol output, from 17.4 to
50.6 bll ltrs
– nearly a 6-fold increase in biodiesel output, from 1.1 to
6.4 bll ltrs
S. 5
Explaining the nature of price
USDA CONFERENCE ON BIOFUELS
linkages...
as energy prices rise costs of agricultural inputs
(fertilizers, pesticides and diesel) increase, putting
pressure on agricultural prices
also biofuels derived from different feedstocks
become competitive with fossil fuels at different
levels (so-called parity price), putting pressure on
the prices of the feedstocks (effectively setting a
‘floor’ price for them)
the link, however, weakens as rising feedstock
prices make them too expensive as a source of
fuel (acting as a ‘ceiling’ effect)
however, these can be significantly influenced by
policy interventions
S. 6
Ethanol, maize and sugar
USDA CONFERENCE ON BIOFUELS
prices (USA and Brazil)...
Weekly US Ethanol and Maize Prices Weekly Brazil Ethanol and Sugar Prices
25/03/05-16/02/2007 25/03/05-16/02/2007
1.25 200 0.70 20
18
0.60
1.00 160 16
US$ per tonne
0.50
Reals per litre
US$ per litre
14
cents pe lb
0.75 120 12
0.40
10
0.50 80 0.30 8
0.20 6
0.25 US Ethanol 40 4
0.10 Brazil Ethanol
Maize Sugar 2
0.00 0 0.00 0
25.3.05 9.9.05 24.2.06 11.8.06 26.1.07 13.7.07 25.3.05 9.9.05 24.2.06 11.8.06 26.1.07 13.7.07
S. 7
Maize and sugar ethanol
USDA CONFERENCE ON BIOFUELS
and crude oil prices...
Weekly US Ethanol and Crude Oil Prices Weekly Brazil Ethanol and Crude Oil Prices
25/03/05-16/02/2007 25/03/05-16/02/2007
1.20 90 0.70 90
80 80
1.00 0.60
70 70
US$ per barrel
US$ per barrel
0.50
Reals per litre
US$ per litre
0.80 60 60
50 0.40 50
0.60
40 0.30 40
0.40 30 30
0.20
20 20
0.20 US Ethanol Brazil Ethanol
10 0.10 Oil 10
Oil
0.00 0 0.00 0
25.3.05 9.9.05 24.2.06 11.8.06 26.1.07 13.7.07 25.3.05 9.9.05 24.2.06 11.8.06 26.1.07 13.7.07
S. 8
Maize, sugar and crude oil
USDA CONFERENCE ON BIOFUELS
prices (USA and Brazil)...
Weekly US Maize and Crude Oil Prices Weekly Brazil Sugar and Crude Oil Prices
25/03/05-16/02/2007 25/03/05-16/02/2007
100.00 200 100.00 20
80.00 80.00
150 15
US$ per barrel
US$ per barrel
US$ per tonne
60.00
cents pe lb
60.00
100 10
40.00 40.00
50 5
20.00 20.00
Oil
Maize Oil Sugar
0.00 0 0.00 0
25.3.05 9.9.05 24.2.06 11.8.06 26.1.07 13.7.07 25.3.05 9.9.05 24.2.06 11.8.06 26.1.07 13.7.07
S. 9
Co-integrating relations
USDA CONFERENCE ON BIOFUELS
among relevant prices...
Maize Sugar
-0.24 0.58
-0.89 0.92 0.61
Ethanol Ethanol
Oil Oil
0.21
-0.13
USA BRAZIL
S. 10
There could also be links to other
USDA CONFERENCE ON BIOFUELS
markets...
higher feedstock prices divert resources from
other agricultural crops, reducing their availability
and increasing their prices
on the demand side, as oil prices rise prices of
synthetic fibers rise influencing those of natural
fiber
S. 11
Effects of rising fuel and food
USDA CONFERENCE ON BIOFUELS
prices will not be uniform...
on food security of different countries
across various feedstocks and other
commodities
on food security of different economic
agents
S. 12
FS effects across countries (1)...
USDA CONFERENCE ON BIOFUELS
rising food and fuel prices likely compromise food
security of countries that are net importers of both
food and fuel as their current account deficits
increase:
– two-thirds of 47 low income food deficit countries
(LFIDCs) for which data exist are also energy deficit and
– include countries like Bangladesh, Ethiopia, Eritrea, Ghana,
Haiti, India, Kenya etc.
countries that are net exporters of both food and
fuel will be in a win-win situation
S. 13
FS effects across countries (2)...
USDA CONFERENCE ON BIOFUELS
for countries that are net exporters in one
and net importers of the other, the situation
depends on the relative size of the food or
energy exports and imports
S. 14
Effects across commodities...
USDA CONFERENCE ON BIOFUELS
different feedstocks become competitive in biofuel
production with fossil fuel at different price levels:
– US$ 35-45/bbl for cane-based ethanol in Brazil
– US$ 40/bbl for large-scale casava-based ethanol in
Thailand
– US$ 45/bbl for palm oil-based biodiesel in Malaysia
– US$ 60/bbl maize-based ethanol in the USA
different feedstocks have different protein contents,
which could significantly reduce protein prices and
enhance food security as crushings increase
different feedstocks have different degrees of
integration into the fuels market (i.e. field-to-wheel
system, the most developed of which is in Brazil)
S. 15
FS effects across economic
USDA CONFERENCE ON BIOFUELS
agents...
producers of feedstocks will benefit from increased
revenues
though they may face higher wages and land
values
employment in rural areas might also increase
(trickle down effect)
net effects on incomes in rural areas in general and
in agricultural incomes in particular though should
be positive
urban households, however, will face higher food
prices
– HHs with high share of food and fuel expenditure will be
particularly hard hit
S. 16
Three further uncertainties
USDA CONFERENCE ON BIOFUELS
complicate the analysis...
uncertainties about the future
developments of fossil fuel prices
uncertainties about the policies that
will be implemented to support the
relevant sector in different countries
uncertainties about the future
developments in second generation
bioenergy technologies
S. 17
Some concluding remarks...
USDA CONFERENCE ON BIOFUELS
subsidies and border protection could distort
agricultural markets, hindering market access by
developing countries and raising domestic prices
and hurting poor consumers
there is a great potential for making ‘bioenergy pro-
poor’
by not blocking market access to products from
developing countries
by devoting public resources to developing
technologies that are labour-intensive, capital-saving
and technology-saving to match the factor endowment
of the poor
by supporting institutions that could pool meagre
resources of the poor
S. 18
USDA CONFERENCE ON BIOFUELS
‘... as things now stand, the International
Energy Agency projects that in 2030,
biofuels will provide between 4 percent and
7 percent of all fuels used for transport,
with the US, the European Union and Brazil
remaining the leading producers and
consumers. If that proves correct, it will
mean that we had a chance to honour all
our solemn pledges to banish hunger and
poverty but to chose to look the other
way...”
Dr. J. Diouf, The Director-General of FAO, 15
August 2007
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