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Climate Action 2011-2012

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climate policy, Governance & finance food security © Flickr/Alex E. Proimos Increased biofuel demand drives up the prices of crops used as feedstocks for biofuels, including maize. Biofuels and food security 48 By Shenggen Fan, Director General, and Tolulope Olofinbiyi, Research Analyst, International Food Policy Research Institute (IFPRI) The recent increases and volatility in the prices of food are fuelling new concerns over the food security of poor people. Biofuel expansion is a major driver of food price trends and it puts at risk the food security of the poor, since it competes with food availability. A comprehensive approach is needed to balance the needs for food and fuel, and ensure sustainable food security. This approach should include effective policies and technology investments to minimise the food-fuel competition; social protection; transparent, fair, and open global trade; a global, emergency, physical, grain reserve; policies and investments to promote agricultural growth in the face of climate change; and an international working group to regularly monitor the world food situation. According to the Food and Agriculture Organization (FAO) of the UN, the global prices of maize and wheat have almost doubled between June 2010 and March 2011 (Figure 1). Many developing countries have also experienced high food inflation in recent months, including those that are home to large numbers of poor people. For example, food inflation rose to 10 per cent in China and 18 per cent in India between December 2009 and December 2010, mostly driven by higher prices of meat, fish, eggs, dairy, vegetables, and fruit. Biofuel demand impacts on food prices and food security The expansion of biofuel production is a major driver of food price trends. The surge in demand for biofuels is driven by rising oil prices, as well as generous biofuel mandates and support policies, particularly in the US and EU. The United States Energy Independence and Security Act of December 2007, for example, calls for an increase in biofuels use to 36 billion gallons by 2022, of which 15 billion gallons will be mainly from maize-based ethanol. Indeed, more than one-third of the 2009 maize production in the US was used for fuel ethanol in 2010, according to the Earth Policy Institute. Research evidence suggests that the diversion of crops from food or feed to biofuel production is a significant source of demand-induced pressure on agricultural markets. Increased biofuel demand drives up the prices of crops used as feedstocks for biofuels, including maize in the US and oilseeds in Europe. Higher maize and oilseed prices, which are quickly transmitted to global markets, have knock-on effects on the prices of other agricultural products, such as livestock. Growing biofuel demand also adds substantially to the depletion of already low global grain stocks, thus eliminating an important instrument for addressing food price crises and protecting food-insecure people. Global biofuel production is expected to expand in the future. Projections from the Organisation for Economic Cooperation and Development (OECD) and FAO show that biofuel production will more than double between 2007-09 and 2019. If current biofuel policies remain in place and oil prices stay high, the prices of agricultural commodities used as feedstocks for biofuels could remain substantially higher and volatile in the coming decades. Moreover, rising biofuel demand will put additional pressure on land and water resources, thus threatening both global food security and environmental sustainability. Poor people are extremely vulnerable to the effects of biofuel expansion as it puts at risk their food security. Rapid increases in food commodity prices as well as excessive price volatility are harmful for poor consumers who spend a

Figure 1. Global food prices, March 2005-2011. 800 US$/metric ton 600 400 200 0 Mar-05 Maize Wheat Rice Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 large proportion of their income on food and have limited capacity to adjust quickly to large price increases. In response to rapid food increases, they cut back on quantity and quality of food consumed. For poor agricultural producers, higher food prices can only be beneficial, through higher incomes, if they are net sellers of food and if input costs do not rise in parallel. In recent years, however, input costs such as fertiliser and transport costs have also been high and volatile. Increasing costs as well as the uncertainty that comes with excessive price volatility in both input and output markets can reduce producers’ profit margins, distort long-term planning, and dampen the incentives to invest more in productivity improvement. In addition, poor small farmers who depend on already fragile agroecosystems have limited capacity to adapt to increased stresses on land and water resources due to biofuel expansion. actions needed to minimise food-fuel competition and enhance food security Looking forward, the challenges in enhancing global food security will continue to grow. In addition to grain-based biofuel needs, global food and agricultural systems will need to feed more people with a wider range of foods and also meet feed needs. According to the UN, world population is expected to reach 9 billion by 2050, with growth coming mainly from urban areas and developing countries. Rural-urban migration and higher incomes are increasing total food demand, and changing the quality, diversity, and composition of the food demanded. In addition, diet shifts from cereals to high-value foods, such as meat and dairy, are increasing demand for animal feed based on grain and protein. A comprehensive approach is needed at the national and global levels to balance the needs for food and fuel, and ensure sustainable food security. This approach, which comprises policy actions and investments, should include: • Effective policies and technology investments to minimise the food-fuel competition. Public policies, particularly in the US and the EU, should aim to curtail and reform existing biofuel policies and subsidies, so as to maximise environmental benefits while minimising the volatility that Indicative export prices, f.o.b 6,000 5,000 4,000 3,000 2,000 1,000 0 Mar-05 Butter Milk Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Source: FAO, 2011. International commodity prices database. Maize = US No 2, Yellow, US Gulf; Wheat = US No 2, Hard Red Winter ord. prot, US f.o.b. Gulf; Rice = White Broken, Thai A1 Super, f.o.b Bangkok; Butter = Oceania, indicative export prices, f.o.b.; and Milk = Whole Milk Powder, Oceania, indicative export prices, f.o.b. biofuels demand may have induced into international and domestic food markets. One measure would be to include provisions to reward lower carbon intensities in biofuel production such as using inputs that are more energyefficient than grain feedstock. Reduction of the non-food demand for grains can also relieve some of the pressure on food markets. Recent research from the IFPRI suggests that trade liberalisation under the current US and EU biofuel mandates can offer important benefits such as greater reduction in global greenhouse gas (GHG) emissions, lower global fuel prices, and smaller global price increases for agricultural products. In the long run, the benefits and threats of food crop-based biofuel production for food security and environmental sustainability need to be carefully evaluated in terms of their real contribution towards lowering GHG emissions and the carbon-intensity of transport fuels. Investments should be made in the development of new technologies that allow for more effective production of biofuels that do not compete with food availability. • Social protection, especially social safety nets, to protect the most vulnerable groups in developing countries, including women and young children, from negative shocks. Despite strong advocacy for creating social safety nets to protect the most vulnerable, many countries have failed to put them in place. In the short term, safety net programmes should be scaled up by national governments in countries that already have them in place. In countries lacking established safety net programmes, governments should begin the development of these immediately with a focus on the areas with extreme hunger, and should draw on best practices from other countries. Safety nets should consist of interventions that increase productive capacity and improve the health and nutrition of vulnerable households. It is also important that the design of these interventions is gender-sensitive. That is, that it considers the complementarities and tradeoffs between the role of women in agricultural production and childcare, for example. • Transparent, fair, and open global trade to enhance the efficiency of global agricultural markets. National governments should eliminate existing export restrictions, such as export bans, and refrain from imposing new ones. 49