Scrap biofuel support to curb food costs – agencies

(Reuters): Governments should scrap policies to support biofuels because they are forcing up global food prices, according to a report by 10 international agencies including the World Bank and World Trade Organization.

The report adds to growing opposition to biofuels targets and subsidies such as those in Europe, Canada, India and the United States.

“If oil prices are high and a crop’s value in the energy market exceeds that in the food market, crops will be diverted to the production of biofuels, which will increase the price of food,” said the report.

“Changes in the price of oil can be abrupt and may cause increased food price volatility,” said the report.

Prepared at the request of the Group of 20 major economies, the report addressed price volatility in food and agriculture, and its authors also included experts from the World Food Programme, International Monetary Fund, the UN’s Food and Agriculture Organisation, and the Organisation for Economic Cooperation and Development.

France has made tackling food price volatility a priority of its G20 Presidency in 2011 and is leading efforts in Europe to crack down on speculation in commodities markets, which it blames for rising food prices.

G20 agriculture ministers will meet in Paris on June 22-23 to discuss possible policy responses, ranging from increasing market transparency to limiting the speculative positions taken by traders in commodities markets.

France has not targeted biofuels in its G20 agenda for agriculture, but the report called for a policy rethink.

“Subsidies to first-generation biofuel production lower biofuel production costs and, therefore, increase the dependence of crop prices on the price of oil,” it said.

“Such policies warrant reconsideration,” it added. “G20 governments (should) remove provisions of current national policies that subsidise (or mandate) biofuels production or consumption.”

Biofuels have sparked a fierce “food versus fuel” debate since a spike in food prices in 2007/08 that triggered riots in some developing countries.

U.S. ethanol industry groups argue that this framing of the debate is unfair and that it overstates the effect biofuels have on food prices.

“The truth is ethanol has a minimal impact on food prices, and other factors -- including weather, political instability, energy costs and speculation in the commodity markets -- play a much larger role,” Stephanie Dreyer, a spokeswoman for industry group Growth Energy, said in an email.

Biofuels have also come under increasing scrutiny for encouraging deforestation, a side-effect that can sometimes make their carbon footprint bigger than that of fossil fuels.

Biofuels absorbed around 20 percent of sugar cane in 2007-2009, 9 percent of oilseeds and coarse grains and 4 percent of sugar beet, the report said.



It did not, however, take into account that biofuel by-products can be used to supplement animal feed, somewhat mitigating their impact on food supplies.

Nowhere has the concern about biofuels run deeper than in Europe, which has already set about overhauling its 10 percent biofuels target for 2020 to take account of impact on land use.

The report’s other recommendations were along the lines of proposals already floated by the French G20 presidency, which France sees as enjoying a wide consensus, including a global agriculture data initiative to improve market transparency.

It also echoed French proposals to establish coordination in handling food crises, and develop emergency food reserves, as opposed to more onerous “buffer stocks.”