Food for Fuel: Good or Bad?

Starving for Fuel?
By RUTH GIDLEY, Reuters

LONDON (Reuters) - Using plants to feed our fuel needs may be a great idea, and the biofuel goldrush could be a moneyspinner for several poor countries, but some experts warn people may go hungry as food prices rise.Fans of biofuels give the impression we could soon be running cars on maize, producing electricity with sugar, and getting power from palm oil.Even though the biofuel boom is only just beginning, it has already pushed up the cost of staples in places like Mexico where rocketing tortilla prices have sparked angry protests.
Some experts foresee a permanent change in food economics if farmers scent higher profit in fuel crops than in growing plants to feed people."We're into a new structure of markets," said British food aid expert Edward Clay. "It could have profound implications on poor people."World leaders promised in 2000 to halve by 2015 the proportion of people, estimated at 1.2 billion or a fifth of humanity in 1990, who live on less than a dollar a day and who suffer from hunger.According to the 2006 review of progress toward the goal, an estimated 824 million people in the developing world were affected by chronic hunger in 2003, mostly in sub-Saharan Africa and southern Asia.Oil prices have roughly tripled since the start of 2002 to above $60 a barrel and as oil resources held by Western firms dwindle, biofuels have seemed viable and the message about climate change has gone mainstream.Governments and oil companies are seeking alternative fuel sources and President Bush has made it clear he supports a major shift toward biofuels.Farmers in the United States are raising production of maize, now a lucrative material for biofuel production. Soaring U.S. demand for ethanol -- produced from crops like maize and sugar cane -- has sent maize prices to their highest level in a decade.
Mexicans are feeling the impact. Tens of thousands took to the streets in January when the price of tortillas tripled to 15 pesos ($1.36) a kg. There are about 35 of the flat maize patties that are Mexico's staple food in a kg.Since half of Mexico lives on $5 a day or less, that's no small jump, and President Felipe Calderon -- a conservative who is a firm believer in free markets -- intervened to cap prices.Food costs as a proportion of incomes have been on a downward slide since World War Two, at least in the West. Clay says one of the big questions now is whether biofuels could reverse that process and take us into a new economic era which might be yet harder on the poor.Although he says the current spike in prices will be temporary, he is not convinced food prices will fall back to pre-biofuel boom levels."By next year, (food) prices will begin to fall away," he predicts. "But that doesn't mean they'll ever fall to what they were before."
The United States and Brazil, the world's top biofuels producers, are not the only countries jumping on the biofuels bandwagon. China has joined them and now ranks in the global top four for biofuels output.The incentive to switch land use from food crops to fuel crops mounts with rising biofuel demand, potentially underpinning prices.Also maintaining upward pressure on food prices are the twin needs of economic boomers China and India to be self-sufficient in fuel, but also in food. China's expanding middle classes want to eat more meat, which requires grain production for feed, in turn keeping food prices high.While food prices are likely to be dampened by farmers increasing food crop production in the short term, the scope for switching is limited.Numerous scientists and economists say China and India do not have enough water to increase grain production, whether for animals or fuel.The biofuel boom may also change policies on food aid.Now U.S. farmers can make good money selling grain to make ethanol, there could be a shift in its policy of giving 99 percent of food aid contributions in goods, rather than cash.It might now actually be more convenient for the United States to buy its food aid allotment elsewhere, food aid expert Clay says.The United States is the world's largest food aid donor but has come under heavy criticism, especially from Europeans, who say aid in kind distorts local markets, often takes a long time to arrive and is more expensive to ship than buy locally.Bush has been trying to persuade Congress to change the law to allow up to 25 percent of the country's food aid in cash, but the bill has been rejected under pressure from farmers who did not want to lose what was more or less a subsidy for their grains.
Bush's bill is up before Congress again this year. For the last few years, the world's annual food aid donations have been around 10 million tons, in line with an international agreement in place since the 1960s for wealthy countries to give at least 5 million tons of food annually.Donations fluctuate depending on prices, and relief organizations are already bracing themselves for a likely cut in volumes donated.Clay says when food prices last rose in 1995, parts of the world where food aid was used in development projects -- like school feeding programs -- were the most vulnerable to cutbacks in the following year.The same places -- Bangladesh, Central America, Eritrea, Ethiopia and North Korea, for example -- will probably be first to feel the pinch now.