The biofuel madness is gathering steam, and it’s not good news for the world’s poor and hungry. Corn prices in the US have been firming on the basis of the demand for ethanol. Corn isn’t the only grain that can be used for ethanol. The federal government’s favourite ethanol manufacturer Manildra uses a lot of wheat too. So there is potential in other grains markets, without taking into account any substitution effects caused by one grain suddenly becoming much more expensive.
This has a number of effects. One is to make biofuels even more uneconomic, thus putting pressure on governments, having mandated their use, to subsidise them even more heavily. The other is to make basic foodstuffs more expensive. And when food becomes more expensive there are consumers at the margins who eat less, or sometimes not at all.
This link to India’s The Financial Express puts the price of grain into perspective, while this link to AgWeb gives a good idea of the supply side – lower stocks forecast for the next year, meaning even more upward pressure on prices.
The biofuel mania is driven by two lobbies – woolly-headed conservationists with a tenuous grasp of energy economics, not to mention the carbon cycle; and commercially and economically canny farmers and manufacturers curing a stock surplus by lobbying for a government mandate combined with a subsidy. Neither group is taking account of the long-term.
And in the long-term, as this link demonstrates, we’re going to need radically more food to feed a world population estimated to top-out at 8.5 to 9.5 billion, one-third to one-half more than it is today.
Putting one man’s dinner into another man’s car hardly seems like a sensible or ethical way of solving any of the world’s problems.
August 02, 2006 | Graham
Biofuels to cause starvation
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Graham, a very good wake up call.
When the biofuel conservationists realise how this particular part of their agenda will convert to a catastrophic amount of permanent environmental destruction along with irreplacable species loss, biofuel may well become a most undesirable fuel option.
Comment by kartiya — August 2, 2006 @ 11:31 pm
Graeme,
I agree there is a lot of irrational exhuberance about biofuels but it may not be that the worlds poor will suffer, because most of the poor are rural poor and better prices will help them.
One half-good result that is already occuring in Europe is that demand for biofuel from crops is taking EU subsidised crops off world markets and into car fuel tanks to be burnt. This may be very effective in minimising crop surpluses and driving global prices up,(it doing this already with sugar and corn) helping poor and unsubsided grain growers with better prices for their produce.
Comment by detribe — August 3, 2006 @ 12:10 am
Graham;
the mystery to me in the biofuel debate is that with the excise rebate biofuels were supposed to be a few cents cheaper than petrol when crude oil was $20/bbl and now they remain a few cents cheaper (still with excise rebate) when crude oil is $60-70/bbl.
Who is doing the profiteering?
Comment by taust — August 3, 2006 @ 12:41 pm
David, putting the price of the commodity up makes it more expensive for people to buy. If you don’t own your own farm and are poor, and a lot of poor are in this position in the third world, then you’re going to be able to afford to eat less.
But overall everyone’s standard of living will be diminished too, because money is being diverted from its highest and best use to something which only works when it is given a tax advantage.
However, the over-riding issue is where we are going to find the land to grow the crops to fuel not just our bodies, but our motor vehicles as well. At current rates of productivity we simply can’t do both, and will probably have trouble even doing the first. Then the starvation will occur not so much through a price mechanism but an absolute shortage.
Comment by Graham Young — August 3, 2006 @ 9:49 pm
Graham;
there is a news item today that the Government is considering raising the biofuel subsidy as a way of lowering the price of petrol (Oh to be a shareholder in a biofuel company).
Biofuel from grain has as a coproduct a high quality animal feed. Thus increased biofuel production whilst raising the price for low quality grain (and thus all grains indirectly) may lead to cheaper animal feed prices
Comment by taust — August 4, 2006 @ 8:31 am
It would be cheaper for them to just cut the fuel excise – the effect on revenue would be exactly the same, and they wouldn’t have to pay a whole new crop of bureaucrats to administer the scheme!
Are you sure that a by-product of ethanol from grain is an enhanced stock-feed? They must leave an awful lot of energy in the crop if that is the case. And as far as I know, the feed-lot industry is opposed to bio-ethanol because of fears it will impact on feed prices.
Have you got link?
Comment by Graham Young — August 4, 2006 @ 9:15 am