Time for Action: Shaping Biofuel Time for Action: Shaping Biofuel Production and Trade for the Production and Trade for the

Common GoodCommon Good

Daniel G. De La Torre UgarteDaniel G. De La Torre Ugarte

Scientific Symposium: Food and Fuel: Biofuels, Development, Scientific Symposium: Food and Fuel: Biofuels, Development,

and a Sustainable Bioeconomyand a Sustainable BioeconomyBoston, MA

February 16, 2008

Characteristics of BiofuelsCharacteristics of Biofuels

Easily integrated with combustion engine infrastructure

Feedstock growth & conversion in / around rural areas

Generates a new energy sector in the economy / increases energy services in rural areas

Provides a sustained demand for ag. resources

Reduced GHG emissions by 20% (no land displacement effect)

Biofuels are not Biofuels are not The SolutionThe Solution to to ( (but could contribute to)::

Climate Change

Energy crisis

Economic development / Poverty

Reduction

Agriculture and PovertyAgriculture and Poverty Developing world

5.5 billion people

2.5 billion are in households involve in Ag

1.5 billion are smallholder households

800 million people food insecure

80% of food insecure people are in rural areas

In many developing countries: >50% of employment

>25% of GDP

Increase in GDP from Ag is twice more efficient for poverty reduction than any sector

Biofuels Expansion took-off when Biofuels Expansion took-off when world inventories were decliningworld inventories were declining

0.00

0.06

0.12

0.18

0.24

0.30

0.36

Per

cen

t o

f to

tal u

se

Corn Wheat Rice

Source: USDA

Grains for Feed and Fuel UseGrains for Feed and Fuel Use

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

00

0 t

on

s

World Feed Demand Feed Demand minus USA Fuel Demnd

Source: OECD-FAO Agricultural Outlook 2007-2016 - OECD © 2007 - ISBN 9789264025097

Feed long term driver of ag. demand

Biofuels demand, the straw that broke the camel’s back

Developing countries are reproducing diet of the west based on high content of animal protein

Long term trend in Long term trend in agricultural commodity pricesagricultural commodity prices

0

50

100

150

200

250

300

350

1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007

Pri

ce In

dex

Nominal Real

Source: International Financial Statistics Online, IMF February 10,2008. Except for real price in 2007, which is estimated by author.

30+ years of declining and or flat prices

Trade off Between Agricultural Trade off Between Agricultural Prices and Food SecurityPrices and Food Security

Ag Prices

% Food Security

P0

P1

Increase in ag. prices is not necessarily aBad for food security, specially coming from Low prices

Not all Biofuels are “created” equalNot all Biofuels are “created” equal Feedstock Agricultural production practices Soil characteristics Land use and land displaced Producers / growers Conversion process Biofuel and bio-products produced End use

Global Anthropogenic GHG EmissionsGlobal Anthropogenic GHG Emissions

Source: Fourth Assessment Report, IPCC (2007)(a) Global annual emissions of anthropogenic GHGs from 1970 to 2004. (b) Share of different anthropogenic GHGs in total emissions in 2004 in terms of CO2-eq. (c) Share of different sectors in total anthropogenic GHG emissions in 2004 in terms of C02-eq (Forestry includes deforestation.)

0.26% Searchinger, et al.GHG for ag and forestry is to address the 31% of annualemissions coming. If we take care of this we take care of

Ag Prices

EnvironmentalCost

Trade-off Between Agricultural Prices Trade-off Between Agricultural Prices and Environmental Costand Environmental Cost

P0

P1Under current agricultural practices and food consumption patterns, an increase in ag prices could accelerate environmental costs

The Question isThe Question is

Under which conditions biofuels can be an opportunity for:

Poverty reduction

Climate change / environmental benefit

Energy crisis / energy independence

Biofuels Expansion StrategyBiofuels Expansion Strategy

In check with Ag production capacity Prioritize domestic/local market Mandates should not drive growth but

secure healthy bottom Incentives must be linked to:

Environmental performanceContribution to rural development

Sustainability criteria should play a key role in the development of the sector

Key Element:Key Element: New Generation Biofuels New Generation Biofuels

To diversify feedstock sources

Improve energy balance and GHG

Diversify fuels produced

Potential for new bio-products,

including fertilizers

Strategy for Poverty ReductionStrategy for Poverty Reduction Increase farmers ability to capture larger share of

higher prices: Invest in farmers’ access to markets, improving

marketing & distribution systems Improve product quality

Democratize access to land, water and productive resources

Invest in research and extension to improve productivity to supply the now profitable local market

Implement programs to ensure access to food for vulnerable population

Expand the Impact of Higher Expand the Impact of Higher Prices in Food SecurityPrices in Food Security

Ag Prices

% Food Security

P0

P1

Investments directed to improve share of high prices capture by farmers would improve food security

Strategy for Climate ChangeStrategy for Climate Change

Drastically change diet composition towards more efficient sources of protein and food from local origin

Invest in Research & Extension oriented to: Reduce use of fossil based inputs in agriculture Improve management practices which increase the

environmental performance of production agriculture Ensure the best use of soils and landscape

Recuperate the complementarity of crop and livestock activities in the farm

Integrate GHG emissions and other environmental impacts into farmers balance sheet

Ag Prices

EnvironmentalCost

Higher Ag Prices Create Conditions to Higher Ag Prices Create Conditions to Invest in reducing Environmental CostInvest in reducing Environmental Cost

P0

P1

Investment in agricultural technologies less intensive in fossil inputs, and in tune with local soil and food habits would reduce environmental cost of agriculture

Trade IssuesTrade Issues Biofuels is an answer to WTO’s idea that

excess production is causing low prices

Biofuels trade has a role: expand supply, reduce price pressures, use more suitable feedstock available, new opportunities

Biofuels trade brings very high risks: size of energy market, expansion of arable land into sensitive areas, overtake land holdings of small landholders, water conflicts

Biofuels trade needs to be regulated

Institutional InvestmentInstitutional Investment Strengthen land property rights and

enforcing mechanisms to protect small holders

Re-develop domestic institutionality to support transformation of agriculture

International food reserve system

Global coordination of biofuel development

Concluding RemarksConcluding Remarks

If nothing is done, missed opportunity for poverty reduction, agriculture, and climate change

Biofuels could result in a massive transfer of resources to the ag sector, specially in the South.

Biofules provides the profitability to invest in agriculture and radically change what, how, and where we produce

Countries could benefit from biofuels without producing them

Department of Agricultural Economics, Institute of AgricultureUniversity of Tennessee http://www.agriculture.utk.edu/

Agricultural Policy Analysis Centerhttp://agpolicy.org/

ThanksThanks ! !

Bio-based Energy Analysis Grouphttp://beag.ag.utk.edu/