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Food vs. Fuel: Current Research and Policy Implications | Water Energy Food Nexus, Bonn 2011

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Nexus Blog

05 Sep 11

Food vs. Fuel: Current Research and Policy Implications

Production and consumption of biofuels has risen rapidly over the past decade, leading to an increasingly integrated nexus between food and energy markets.

Over the same period, food prices have risen steadily, after having been generally stable or dropping for most of the previous half century. This current trend is cause for concern, especially when high prices lead to reduced food security for vulnerable populations. Increased demand for biofuels – driven in large part by government mandates – has come under fire as a potentially important driver of elevated food prices.

While still a small segment of overall commodity crop demand, the effect of biofuels on global markets is growing rapidly. For example, the proportion of global maize output used to produce ethanol rose from 4% in 2001 to 12% in 2008. Meanwhile, demand for ethanol fuel is expected to rise by 110% over the next decade while biodiesel demand will nearly triple. This represents the largest new crop demand in decades and could be a strong factor underpinning the upward shift in agricultural commodity prices. This “food vs. fuel” issue is of increasing interest to decision makers who want to ensure that biofuel policies – aimed at enhancing energy security and environmental sustainability – do not reduce food security for vulnerable populations.

Of particular interest and concern is the commodity price spike of 2007 and 2008, which is estimated to have added 100 million people globally to the ranks of the undernourished. This crisis has subsequently been studied extensively as it can provide a window into the mechanisms of food price fluctuation as well as insights into how the impacts of such spikes might be mitigated in the future.

Increased demand for biofuels is only one of several important factors that have been identified as possibly playing a role in the 2007/08 food price spike.

Some others are:

  • Elevated cost of agricultural inputs such as fuel, fertilizer, and shipping, due to record high petroleum prices in the same period;
  • Low projections of global grain stocks and crop size for 2008;
  • Steadily increasing food import demand and rising meat consumption globally;
  • Weakening of the U.S. dollar, in which international commodity prices are denominated;
  • Export restrictions and other protectionist domestic policies in some countries;

It is difficult to robustly divide responsibility among the above factors. However, researchers are using economic models to better understand these effects in the interest of preventing or mitigating future food security crises. Their findings indicate that production costs and global food demand increases are probably the largest drivers of food price. However, they also find that biofuel expansion can be expected to exert significant upward pressure on food prices going forward. Estimates of this effect range from 5 to 25% elevation in food prices over the coming 20 years.

Policy implications

Among the major drivers of food price increase, biofuel expansion is the only one that stems primarily from government intervention. Recognizing this, incentive structures must be designed or altered so as to support food security among vulnerable populations. Some of the following proposals could help to avoid or reduce any negative effects on food security:

  • Make biofuel mandates flexible. Where targets are inflexible, any market response to higher international prices will be concentrated in the food and feed sectors. Mandates can include a “pressure release” mechanism, lowering or removing the target when global food price indicators reach certain predetermined levels.
  • Implement regular reviews of food price and land use effects of biofuel policies, adapting those policies accordingly.
  • Incentivize expansion of second generation biofuels where they do not compete with food and animal feed. These fuels may sometimes cause a net decrease in food prices by reducing fuel costs and thereby the cost of agricultural production.
  • Design biofuel policies to minimize indirect land use change (ILUC). Where ILUC is included in life cycle GHG accounting for biofuel policies, calculations should hold food production constant or project future expansion. This will reduce incentives to divert food crops or productive land to biofuel.

Kevin Fingerman is a Ph.D. candidate in UC Berkeley’s Energy & Resources Group as well as serving as Vice-Chair of the Geneva-based Roundtable on Sustainable Biofuels. Contact: kfingerman[at]berkeley.edu

Please contact jcornforth[at]stakeholderforum.org for a full list of citations used in this blog.

Further Reading

31 May 12

The SEI’s work on the water, energy and food security nexus – an interview with Holger Hoff

17 Dec 13

Research papers are welcome for Volume 2 Issue 1 (May 2014) based on the theme of “Water for Food”.The submission deadline for abstract is 30 Dec 2013.

NEXUS in the Media

08 Aug 12

New York Times

The price of corn is a critical variable in the world food equation, and food markets are on edge because American corn supplies are plummeting. The combination of the drought and American ethanol policy will lead in many parts of the world to widespread inflation, more hunger, less food security, slower economic growth and political instability, especially in poor countries.

31 Oct 12

Financial Express (Dhaka)

Bio-fuels can help reduce global warming by curbing greenhouse gas emission and create employment opportunity and increased income for the rural poor in developing countries. Recently, the production and use of bio-fuel has increased globally due to soaring fossil fuel price and to secure sustainable energy supply for the future.

15 May 12

Climate Science Watch

Assessment of human-environment systems together is so important, the document stresses, because the interdependence of Earth system processes affects ecosystems, human communities, and socio-economic sectors. Key resources – water, energy, and food – are strongly connected to the environment and are thus vulnerable to global change.

25 May 12

Parliament.UK

“Agriculture is at the nexus of three of the greatest challenges of the 21st century-achieving food security, adapting to climate change, and mitigating climate change while critical resources such as water, energy and land become increasingly scarce”.

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