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A. AbbassianSecretary of the Intergovernmental Group on GrainsFood and Agriculture Organization of the United Nations - FAO
Food Security with Biofuels?An FAO Perspective
Seminar on Impact of Bio Fuel Crops on the Poor and the Agriculture Sector
Common Fund for Commodities (CFC) Kuala Lumpur, 26 November 2007
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Presentation Overview I. Why biofuels? Why now?
II. Bio-energy and biofuels: now and after
III. Do biofuels reduce consumption of fossil fuels and lower CO2 emissions?
IV. At what cost?
V. High food prices and biofuels, are they related?
VI. A threat to food security?
VII. Bioenergy activities in FAO: work in progress
VIII. Concluding remarks
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Bio-energy Today Bio-energy already accounts for 14% of total world
energy use; 33% in developing countries (70% in Africa) but only 2-3% in industrial countries
Small scale burning of biomass accounts for most household source of energy for cooking and heating in poor countries (2-3 billion people!)
Liquid biofuels used for transport still small: 40% of transport fuel in Brazil but only 3-5% in USA and EU and even less elsewhere
Source: P. Hazell and R.K. Pachauri (IFPRI, 2007)
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Biofuel production in the OECD countries relative to world production (million liters)*
*Source: International Institute for Sustainable Development (iisd), Global Subsidy Initiative program (GSI) –September 2007
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High food prices and biofuels, are they related? Explaining the nature of price 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 feedstocks
The link weakens as rising feedstock prices make them too expensive as a source of fuel
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Parity prices: Petrol–Crude oil–BiofuelsVarious feedstocks and farming/production systems
0
20
40
60
80
100
120
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8
Petrol, US$/l
Cru
de
, U
S$
/bb
l
Gasoline-Crude US$ Cane Brazil, top producers
Cane, Brazil, average Cassava, Thai oil, 2 mio l/d
Cassava, Thailand, OTC joint venture Maize, US
Mixed feedstock Europe Palmoil, MPOB project
Source: J. Schmidhuber, FAO ( 2005)
BTL: Synfuel/Sunfuel
Competitiveness by feedstock
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FAO food price index and CRBcommodity and energy indices
(1998-2000=100)
FAO price indicesfor selected commodities
(1998-2000=100)
Source: FAO (Food Outlook, November 2007)
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A priori, we may assume that recent grain price hikes are determined, inter alia, by the price of petroleum, stocks in the major grain exporting countries, the US$ exchange rate relative to its major trading partners and in the case of maize, by the quantity of industrial demand – a proxy for biofuel. That is,
Ptwt = f(Pt
oil,STt wt.mj.ex,XRt
US)
Ptmz = f(Pt
oil,STtmz.mj.ex,XRt
US,QDtind),
VAR models for the above were estimated over the period 1978 to 2007 using annual data.
*Source: A. Prakash, FAO (2007) [email protected]
Preliminary FAO work on assessing the importance of different factor in price formation*
Notes: VAR Unrestricted Model - Based on data for Major Exporters only – All Data Logged - Prices in Real Terms -Oil in Brent
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Main results** The specified variables, together, capture around 90% of the variation in grain prices Statistically, grain prices are strongly influenced by the specified variables Causality tests (Granger) showed that variations in prices are both caused by past variations in these
variables, jointly and individually
Relative influences
Changes in maize and wheat prices were decomposed by the relative contribution of each variable. Changes in stocks have the greatest influence on prices
proportion of change (∆) in maize price explained by changes in:
∆Ptmz ∆STt
mz.mj.ex ∆QDtind. ∆XRt
US ∆Ptoil
0.27 0.35 0.12 0.11 0.15
*Source: A. Prakash, FAO (2007) [email protected]
Factors driving higher grain prices - Can their influences be measured?*
**Results based on forecast error variance decomposition
proportion of change (∆) in wheat price explained by changes in:
∆Ptwt ∆STt
wt.mj.ex ∆XRtUS ∆Pt
oil
0.44 0.25 0.15 0.16
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Wheat stocks and price Maize stocks and price
Source: FAO
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Coarse Grains exportersCoarse Grains stocks
and ratios
Source: FAO (Food Outlook, November 2007)
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Maize utilization and exports in the USA
Soybeans/Maize nearby futures ratio
Source: FAO (Food Outlook, November 2007)
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Biofuels Tomorrow
By 2010 the EU plans to double the share of renewable energy in its primary energy consumption to 12%. Biofuels will increase to 5.75% of total transport fuels
The USA also plans to more than double its current 2% share for biofuels by 2016 but this may accelerate
Brazil plans to increase biofuels share from 37% to about 60% by 2020
China and India have launched new bio-energy industries
Source: P. Hazell (2007)
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Projected grain utilization in OECDand non-OECD countries
Source: OECD-FAO Agricultural Outlook 2007-2016
Wheat
Coarse Grains
0 200 400 600 800
Average2004-2006
2016
Average2004-2006
2016
Million Tonnes
Food
Feed
Other
OE
CD
NM
Es
0 100 200 300 400 500
Average2004-2006
2016
Average2004-2006
2016
Million Tonnes
Food
Feed
Other
OE
CD
NM
Es
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Outlook for selected world crop prices to 2016 (Index of nominal prices, 1996=1)
Source: OECD-FAO Agricultural Outlook 2007-2016
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1996 2001 2006 2011 2016
Coarse Grains
Wheat
Rice
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1996 2001 2006 2011 2016
Vegetable oil
Oilseed
Oilseed meal
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What is food security?
Food security exists when all people, at all times, have physical, social and economic access to sufficient amounts of safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life
Four dimensions of food security:
Availability, Access, Stability and Utilization
A threat to food security? How the Low Income Food Deficit Countries are/could be affected?
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Food Security: Availability
Availability of food could be threatened by bio-energy production:
currently, about 14 million hectares (1 % of the world’s arable land) used for liquid biofuel production
2.5-3.8 % arable land could be used for biofuels by 2030
and 20 % of the world’s arable land by 2050
Source: FAO - CFS 33rd Session-May 2007
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Food Security: Access
Access is influenced directly by food prices and incomes
In the longer run, the competition between food and fuel could be alleviated
The expanding market for biofuel feedstock could contribute significantly to higher incomes for farmers and offer employment opportunities in rural areas
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Food Security: Stability
Stability can be disrupted by price volatility
Expanded use of agricultural commodities for biofuel production could increase the volatility of food prices
Increased risks for the environment
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Food Security: Utilization
Affected by bio-energy, but less directly so than for other aspects
Utilization is closely linked to health status and access to clean water
Bio-energy could make water less readily available for household use
On the other hand, modern bio-energy could make cooking both cheaper and cleaner
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Food security effects of rising pricesacross countries
Rising food and fuel prices will 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 (LIFDCs) 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 find themselves in a win-win situation
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
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Forecast import bills of total foodand major foodstuffs
Source: FAO (Food Outlook, November 2007)
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Forecast changes in food import bills of selected
LIFDCs: 2007 over 2006 (%)
Forecast changes in global food import bills by type:
2007 over 2006 (%)
Source: FAO (Food Outlook, November 2007)
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Who are the hungry?
World: 860 millionDeveloping countries: 830 million
Countries in Transition25 million
Sub-Saharan Africa206 million
Near East and N. Africa38 million
Latin America and the Car.52 million
Asia and the Pacific524 million
Developed Market Economies9 million
India212
China150
Source: FAO
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World Development Report 2008:
75% of the world’s poor live in rural areas and most work in agriculture
Majority of the world’s poor will still be in rural areas in 2040
Agricultural growth is the main engine for poverty reduction
For the two-thirds poorest, income growth originating in agriculture has more impact than income from non-agricultural sectors
Source: World Bank (2007)
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Which biofuels? Jatropha factor!
Is it economic at current (rising) oil price? Does it have favorable energy and carbon
balances? Will it conflict with food production? Can biofuel production be made pro-poor?
Scale matters! Should countries invest in it now or wait for
next generation technologies?
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Legislation No legislation in place for
Bioenergy National Bioenergy Task
Force
Land Tenure All land owned by state Released to villages, state,
individuals
Infrastructure Scale matters and the
technology is highly capital intensive
Very limited number of roads
Bioenergy proposals always close to existing infrastructure (road or railroad)
Constraints to investment
Who are the poor and most food insecure relative to bioenergy development?
Identify and respect national priorities about food security and self-sufficiency (maize)
Land and legislation could be serious hurdles to bioenergy investment
Resolve potential conflict over access and control of natural resources
Source of income and energy Create incentives for
reinvestment Stimulate domestic economy
and rural development Source of export earnings –
even as a feedstock?
The way forward
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Examples (i) Technical assistance to member countries
Project formulation and technical advisory services Support the design and implementation of bioenergy policy and
programmes Country studies/projects: Argentina, Belarus, Chile, China, Costa Rica,
Croatia, Dominican Republic, Myanmar, Peru and Slovenia Respond to requests for investment, feasibility and technical support
Examples (ii) Cooperation with national, regional and international partners
Secretariat of the Global Bioenergy Partnership (GBEP) at FAO FAO currently Vice-Chair of UN-Energy, with bioenergy as one of the
main programme elements of this interagency mechanism Increased requests and activity on bioenergy from FAO Reg Offices FAO partners with numerous intergovernmental organizations
Bioenergy activities in FAO: work in Progress...
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Three-year - USD 3.7 million – 11 January 2007 Guidance on potential effects of bioenergy on
food security in developing countries Started country selection process and
development of analytical framework Capacity-building, policy formulation and
technical guidance National Bioenergy Teams and replicable project
models Legislative Framework Report
Bioenergy and Food Security (BEFS) Project
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Concluding remarks... high oil prices and the need to reduce greenhouse gas emissions are
among the important drivers in this fast expanding sector. grains/oil plant-based biofuels are becoming a major source of demand
but they are expensive to produce and currently rely on high subsidies and market protection
debates on their net energy balance and on their effectiveness in reducing carbon emissions continue
in the meantime, food prices are affected (increasing) although other factors such as low food inventories have had even more significant impacts
there are good reasons to caution against too much reliance on biofuels as a way forward in getting away from using “risky” fossil fuels
but biofuels can empower rural poor farmers in developing countries, to embark on faster income growth and development
assuming access to technology and land tenure as well as availability of adequate infrastructure, capital, legislations, etc.
a carefully planned, tailored, sustainable, bioenergy strategy is needed
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Relevant International Meetings/Reports World Development Report 2008: Agriculture for Development (World
Bank, October 2007) Food Outlook (FAO, November 2007) World Energy Outlook – 2007 from International Energy Agency (IEA)-
provides medium to long-term energy market projections and analysis with China and India as its special foci in this year’s report (7 November 2007)
The Intergovernmental Panel on Climate Change (IPCC) - Synthesis of IPCC Fourth Assessment of the state of knowledge on climate change (17 November 2007)
United Nations Framework Convention on Climate Change (UNFCCC) - Bali, 3 - 14 December 2007
Food Outlook (FAO, June 2008) FAO High-Level Conference on World Food Security and the
Challenges of Bioenergy and Climate Change 2-5 June 2008 OECD-FAO Agricultural Outlook 2008-2017 (July 2008) State of Food and Agriculture 2008 (SOFA), FAO. Focus: Bio-energy
(November 2008)
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Chairman of the Interdepartmental Working Group
SOFA 2008 Bioenergy [email protected]
Global Bioenergy [email protected]
International Bioenergy Platform (IBEP) Website:
Key FAO contacts on bioenergy
http://www.fao.org/sd/en2_en.htm
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A. Abbassian (Analyst and the Secretary of the Intergovernmental group for Grains)[email protected]: (++39) 0657053264
C. Cerquiglini (Database Management and World Outlook Reports) [email protected]
J. Heine (Database Management and Monthly News Report) [email protected]
S. Ripani (Administrative Assistant)[email protected]
FAO Grains Website: http://www.fao.org/es/esc/en/15/53/index.html
Grains Team in FAO Trade and Markets Division
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MORE IN......July 2007October 2007* November 2007*
Monthly News Report on Grains
*published 6 times a year *published 2 times a year
