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Weekly Comment

Food versus fuel: is a happy ending possible?

05-Feb-2007

The era of biofuels is here but this does not necessarily mean unending food price shocks or a critical diversion of agricultural production away from food.

What it represents instead is an opportunity for agricultural diversification and a better use of resources for the good of the planet. Furthermore, the food sector need not lose out so long as resources are better managed. The new energy era undoubtedly heralds enormous change. The growth of biofuels energy sourced from agricultural commodities has blurred the line between food and fuel economies, and will redefine the role of agriculture in the 21st century. For example, food processors and biofuel producers now increasingly compete in the same commodity markets. Biodiesel, starting from 251 million gallons in 2000, more than tripled to an estimated 790 million gallons in 2005. This dramatic increase in biofuels is tied up in the global drive towards cleaner fuel and is influenced by concerns over climate change and a possible shrinkage in the flow of imported oil. Growth of the sector appears inexorable. Peter Kendall, president of the National Farmers Union for England and Wales, claimed last month that ground was broken on a new ethanol plant every nine days in the United States from July 2005 to November 2006. Some commentators predict that this trend will put immense pressure on future food prices. Indeed, cereal prices - particularly wheat and maize - have already reached levels not seen for a decade, and the FAO has predicted that the use of crops for fuel will continue to support high prices. The recent enthusiasm for biofuels has also helped maize prices in the US to double in just over a year to about $4 a bushel. This of course is potentially good news for global agriculture, whose role in the global economy is being strengthened. It certainly appears good news for developing nations in the south, who will be able to find new markets for products such as sugar cane and palm oil. Look at Brazil. Half of its sugarcane crop is currently used for sugar and the other half for ethanol. The country is looking forward to lucrative ethanol supply contracts overseas. Following CAP reform, European sugar producers are looking to tap similar opportunities. Furthermore, the EUs goal of meeting 5.75 per cent of automotive fuel needs with biofuels by 2010 will drive such growth. All well and good. But how will all this affect the food industry? Surely demand for agricultural commodities from the energy sector will inevitably lead to the diversion of resources and put immense cost pressures on the food industry? And will the world's insatiable thirst for fuel threaten biodiversity and lead to critical food shortages by forcing poorer nations into monoculture for the energy sector? A report from The Earth Policy Institute warned that competition for grain between the world's 800 million motorists and its 2 billion poorest people is emerging as an epic issue. It argued that soaring food prices could lead to food riots in lower-income countries that rely on grain imports, such as Indonesia, Egypt, Algeria, Nigeria and Mexico. The growth of ethanol production has undoubtedly contributed to rising crop prices, with knock-on effects for the food sector. Maize - the biggest crop in the US - is important to meat and poultry producers as well as to food and drinks makers and influences other crops and food prices. But agriculture has always adapted to the changing needs of humans, and there is no reason why this shouldn't be true now. Recent innovations such as soy ink and grain-based paper have further diversified the use of agricultural commodities. Biofuels is simply the latest - albeit the most significant - development. Perhaps legislative action is needed to reduce the immediate cost pressures on the food industry. Many in the sector are rightly concerned that making biofuel production mandatory will distort fair competition for resources. Caobisco for example wants the EU to revise the whole system of import duties and trade barriers and to expand as much as possible the feedstock base for biofuels. But the point is that if agriculture has the potential to provide both our energy and nutrition needs, then we must face this opportunity positively. We need to review agriculture's role in the 21st century. We need to assess how significant developments in seed technology, agricultural know-how and supply chain efficiency will help to meet growing global demand. Because it is a shameful fact that there is more food per capita today on a global scale than ever before. In some parts of the world there are surpluses; in others starvation. It might be hopelessly naive, but perhaps the growing demand on agricultural commodities sparked by the biofuels revolution will force the world to manage its precious resources better, to the benefit of everyone. Anthony Fletcher is the editor of FoodNavigator.com and is a specialist writer on food industry issues. With an international focus, he has lived and worked in the UK, France and Japan. If you would like to comment on this article please e-mail anthony.fletcher@decisionnews.com.

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