Grain prices have suddenly doubled worldwide and are expected to remain at these levels. For the billions of people who spend a large percentage of their income on food, mostly the urban poor in developing countries, this is and will be a disaster. Starvation and misery, civil unrest, wars spilling across borders and environmental degradation as marginal land is forced into food production will result from this increase in grain prices.
This escalation in grain prices is a result of an imbalance between supply of and the demand for the world’s grain stocks caused by,
• increased demand for grain-fed protein as Asian countries increase their standard of living and aspire to the standard of living enjoyed in the developed countries;
• increased demand from an increasing world population;
• decreased supply as higher oil prices increase the cost of growing grain;
• decreased supply of grain due to a series of droughts; and
• decreased supply resulting from a rapid increase in the percentage of arable land used to produce biofuels.
Other than biofuel production, we do not have much control over these factors imposing on the grain supply-demand equation.
As in the past we are relying on increasing agricultural productivity to balance this equation. Greater worldwide investment in agriculture science and infrastructure, together with moderate price increases, should ensure success in meeting this uncontrollable demand.
It is the supply impost and rapid increase of the food to fuel industry, namely the use of arable acres for first generation biofuels; the one factor we can control, that agriculture is struggling to come to terms with.
This food to fuel industry is being driven by the mandates and subsidies put in place by governments of the developed world.
About 2000 million tonnes of grain are produced annually in the world. The USA has mandated that 150 million tonnes of corn be turned into ethanol each year. Add similar mandates across the developed world and we can see that at least 10 percent of the world’s grain is mandated for ethanol production.
Further add the acres of sugar beet, sugarcane and cassava used for ethanol, the acres of canola, soybean and palm oil used for biodiesel and we can clearly see that the percentage of arable land taken from grain production by first generation biofuels is a very significant factor in the doubling of grain prices.
With oil currently at about US$100 per barrel there is the real possibility that it will be economically advantageous for the developed world to outbid the poorer countries for the world’s grain and so lead to the greatest disaster yet known to mankind.
The advertised benefits of first generation biofuels, namely the food to fuel industry, can be largely discredited.
• The increase in fuel security is insignificant as just a 5-10 percent replacement of fossil fuel would require the conversion of much of a countries grain production;
• The CO2 reduction benefits of first generation biofuels have been shown to be negligible to negative (Searchinger, et.al., 2008, Science 319,1238);
• Owners of arable acres and investment landlords may gain but some in agriculture will lose. For example, to meet a price point in Asia, higher grain prices for a feedlot will mean that the operator can only pay lower prices for the store steers that are to be fattened;
• Food price inflation resulting from high grain prices may be manageable in the developed countries but in the developing countries it will tear them apart both economically and politically;
• Higher prices for grain may not in fact lead to the expected worldwide supply response and the modernisation of agriculture in developing countries. This is because to avoid political unrest, riots and worse, many developing countries must hold their domestic grain prices down by taxing, limiting exports and subsidising imports. This means that their farmers do not receive the price signals to increase production nor the increased income to purchase the higher priced fertiliser and other inputs;
• Suggestions that grain ethanol production is necessary as a stepping stone to the introduction of cellulose ethanol appear unfounded. The grain ethanol infrastructure will not be located where needed for the production of cellulose ethanol. With cellulose ethanol potentially a significant player in combating climate change, public acceptance is a given, with no need of a grain ethanol stepping stone.
In summary, the potential disaster of food shortages for the world’s poorest far outweigh the marginal benefits of converting food to fuel.
Governments of the developed world, that’s you and me, are fully liable for this immoral situation we find ourselves confronting.
Rust disease may take out Pakistan’s wheat crop, China may have a drought and Egypt may not be able to afford to buy grain. Will the developed world continue to grind grain for ethanol in the face of the resultant mass starvation? If the answer is yes, then our civilisation must be judged unethical and selfish, lacking any respect for our fellow human beings. If no, then the food to fuel industry is an uneconomic nonsense as the plants cannot afford to be shutdown. Either way, Governments should not be supporting but indeed should be discouraging this industry.
Alternative fuel sources are still required.
Second generation ethanol produced from cellulose or other photosynthetic biomass holds some promise. Utilising marginal acres this biomass production need not encroach on arable land to the same extent as food to fuel biofuels and the CO2 reduction from cellulose ethanol is much greater than that from corn ethanol.
This is one of the alternate fuel source industries that governments should be mandating and subsidising. To be fair to the USA, they have taken steps along this road with their recent Energy Bill but too late, the damage has been done.
It is a matter of urgency that you or your organisation familiarise yourself with the details of first generation biofuels and its contribution to the disaster of high grain prices. Information is readily accessed by Google. A Victorian Parliament Committee released in Feb. 2008 the ‘Inquiry into Mandatory Ethanol and Biofuels Targets in Victoria’. This is essential reading to further your knowledge of biofuels from a domestic Australian viewpoint. Note their recommendation that Victoria does not mandate ethanol as proposed.
If you come to the similar conclusion as I have, then please act to at least discourage governments from mandating and subsidising the production of biofuels from grain and vegetable oils. Better still, encourage governments to limit commercial food to fuel production in sympathy with the needs of the worlds poor and to promote second generation biofuels. Taking one further step, suggest governments ensure that scientists in agriculture are encouraged and funded to increase sustainable grain production worldwide.
Geoff Ward
April 10, 2008
Jennifer Marohasy BSc PhD is a critical thinker with expertise in the scientific method.
An excellent piece on this topic. One of the few in the mainstream Canadian fifth estate who has the intelligence to question the dogma and the guts to challenge it publicly!
I agree, it is not good sense to be starving people for the sake of a green whimsy. But there are parts of this analysis that do not stack up.
Most of the worlds poor are rural poor, not urban poor. And it is only the urban poor who will be in serious trouble from higher prices.
For the rural poor this doubling and trebling of food prices is the good economic news that well informed development economists have been calling for for years. The major cause of their poverty was the low cost of energy and the resulting low break even price of industrially farmed commodities.
These low priced industrial food stocks undermined the prices of third world farming produce to the point where the results of a days labour were insufficient to feed the farmers family.
What the major increase in energy costs has done is to produce a major increase in the price of fertiliser which is obviously not good for those users. But in the third world this also means that the nitrogen in a cows turd has also undergone a major increase in value to a point where the effort expended in collecting that turd will be properly rewarded by the additional food it will grow and the major increase in price it will obtain.
And while the increase in energy costs has raised the price of weedicide for the developed world, for most of the worlds farmers it has re-created the circumstances in which a day spent chipping weeds with a hoe will be rewarded with more than enough food to make it worth his while.
The improved weed control improves the water use efficiency of their limited rainfall supplies. It can have the same effect on farm output as a 30% increase in rainfall.
The problem in third world agriculture was never one of lack of underlying capacity. Cheap commodities from cheap oil simply undermined the structure of their local economy to a point where the effort required to produce a surplus of food over their own needs was more than the extra food was worth.
Those days are gone. These farmers have been sent a very powerful price signal from the market place that their efforts are now valued more highly and are prepared to pay a much fairer price for what they produce.
And those members of the starving, rioting urban poor who still retain their links to the rural community will soon discover that there are new, secure jobs back home providing services to those who, some for the first time in their lives, are enjoying a profitable surplus.
And who of us would not wish them all the very best in their endeavours.
Ian,
I considered urban poor to include those who have no ownership of rural land and have moved to rural townships as well as the big cities.
I don’t see why the farmers in a developing country will be any more generous than those in the developed world towards the urban poor.
I think I had better rephrase that comment.
I don’t see why the farmers in a developing country will be any more generous than those in the developed world who advocate the subsidized conversion of food to fuel, reducing the world’s food supply, for their profit.
So why is it, after generations of unfettered market forces that dragged food prices down to the detriment of farmers all over the world and to the benefit of urban consumers, are farmers now expected to be “generous”, as you put it, when the terms of trade are going the other way?
Do I detect the stench of a double standard here? Why is it that urban consumers only accept “market forces” when they are the beneficiaries?
Ian Mott,
“Do I detect the stench of a double standard here?’
History is always a good indicator of what could be in store (or say,in the case of Zimbabwe, what’s not in store).
http://www.dailyreckoning.com.au/government-policy/2008/05/08/
Caveat emptor!