Global Forum on Food Security and Nutrition (FSN Forum)

Comments on the High Level Panel of Experts Report

On Biofuels by the Private Sector Mechanism

January 30, 2013

The Biofuels report has several areas of sound analysis, but the private sector notes with concern that many of the policy recommendations do not draw upon that analysis.

Currently the report does not distinguish between well considered economic consensus and more peripheral or theoretical views.  Weighting of the analysis should reflect it gravitas and consensus rather than its capacity for soothsaying.

The policy section should be reconsidered in the next draft and the private sector mechanism offers the following points to close considerable gaps:

• The most recent report on 'The State of Food Insecurity in the World' for 2012, compiled by the WFP, IFAD and the FAO, highlights the importance of agricultural development. It states that investments in agriculture generate more economic growth in developing countries than investments in any other sector, which in turn would benefit the poor and undernourished. A high agricultural commodity price level is considered core to the development strategy. Other crucial issues are investments into the infrastructure, and long-term security for farmers, i.e. clear ownership rights, education and political stability, meaning, for example, that the farmers also benefit from higher prices, rather than this income being lost along the chain due to corruption, waste etc.  In 2005, the FAO also stated that ‘the long-term downward trend in agricultural commodity prices threatens the food security of hundreds of millions of people in some of the world’s poorest developing countries’. This was reflecting real concern about the lack of investment in agriculture and the insufficient positive signals given to farmers to enhance production.

• Higher food prices and high demand for farm products – going into food, feed or biofuels markets -  have made a considerable impact on farm incomes and therefore rural poverty.  This point is essential to the report.

• There is almost no discussion of trade and government export bans etc and their role in food price volatility, nor of the role of limited stocks.  Any discussion on price impacts must be put into this context.

• Only 2-3 % of global farmland is dedicated to the cultivation of biofuel crops.  Global agricultural production can also be increased without laying claim to additional, ecologically valuable land. Figures on exactly how much potential farmland is currently lying fallow vary. 'Diverse studies of global land cover and potential productivity suggest that anywhere from 600 million to more than 7 billion additional acres of under-utilized rural lands are available for expanding rain-fed crop production around the world, after excluding the 4 billion acres of cropland currently in use, as well as the world’s supply of closed forests, nature reserves, and urban lands. Hence, on a global scale, land per se is not an immediate limitation for agriculture and biofuels.’  Kline, K., Dale V. H., Lee R. and Leiby P. 2009: In Defense of Biofuels, Done Right. In: Issues in Science and Technology. Spring 2009 (Volume 25, Issue 3, pages 75-84) The evidence on land use change is still evolving – policy recommendations in this area should be very cautious and should look at empirical evidence:  what land use had actually changed, and why. 

• The report gives the impression that there is an inherent conflict between food security and first generation biofuels.  Yet these are not mutually exclusive outcomes.   The demand incentive for biofuels from food crops in recent years has led directly to greater crop production and productivity improvements and investment in the agricultural supply chain.  This can be seen for example in the EU in terms of increased rapeseed production for biodiesel, and in the US, particularly with corn use for ethanol.   Mandates and targets set at moderate levels have served a key role in encouraging such investment and should not be seen in the negative light portrayed in this report.  

• There is a suggestion that biofuels in developing countries is being driven by developed market demand.  However, biofuels from Africa are not flowing to the EU, nor is much soy oil from Argentina.  The EU imports of Argentine soy meal are driven by vegetable protein deficiency in the market.  The report needs correction in light of real trade figures. The US, Canada, and Brazil are using their domestic production.

• Biofuels policies can also play an important role in helping to deal with supply side shocks when these occur, with what may be increasing regularity in the future.   As one example, in the US the demand for grain use for ethanol production is not inelastic.  Under the US Renewable Fuel Standard, fuel suppliers are able to roll over 20% of their current year blending obligation into the following year.  This provides flexibility when there are supply side constraints.   Moreover, the impact of ethanol production on the increase in grain demand is largely over-estimated.  Increased global demand for grain is driven by various factors, including greater use in feed consumption, particularly in China, not principally by ethanol demand.

• First generation biofuel production has provided incentives for making agriculture more sustainable and more productive all over the world, thereby considerably increasing the global productivity potential of agriculture.  For example, standards in some regions have been put in place to prevent any negative ecological and social effects potentially associated with the production of biofuels. This means the cultivation of crops for biofuel production and the production processes themselves are meeting high standards that often go beyond those applied to food or livestock feed production in some places.

• The co-products from food crop based biofuels production are key to supporting food security but this is not fully reflected either in the overall debate, or in many of the studies on Indirect Land Use Change.   As one example, in Germany the increased cultivation of rapeseed has contributed significantly to reducing dependence on protein imports for feed and livestock production.   Around 50-60% of rapeseed is protein meal. Rapeseed meal is not the only useful by-product from rapeseed processing. Lecithin and glycerine are other co-products which are important raw materials for the food and the pharmaceutical industry.   The same is true of corn, where increased cultivation had also led to significant amounts of co-products for the feed industry. There is a missing piece of analysis on farm efficiencies and waste, including manure use.

• Biofuels crops can provide a valuable part of crop rotations and income risk management for farmers in various regions. For example, in Europe, oilseed rape is the only extensively cultivated leaf vegetable that can increase the usually tight grain crop rotation cycles and is extremely important for increasing soil fertility, and topsoil formation.

• All ag production should be socially and environmentally sustainable but that does not mean everything should be under certification schemes which can add unnecessary costs into supply chains.  Certification works for supply chains outside of mainstream supply;  once you go mainstream it is not the most efficient way of doing things.

• There is little discussion of policy waivers – where you can stop using crops for biofuels at a certain price level – yet this would be the most pragmatic next step on policy.  Policy waivers and which ones work best are not well understood.

• The only current large scale alternative to first generation biofuels in liquid transport fuels are fossil fuels.  Despite the investments in advanced biofuels research and development, they are neither commercially nor technologically viable to meet current or future mainstream transport fuel demand.   Abolishing biofuels mandates would lead simply to more use of fossil fuels in the medium term. (i.e. up to 2020 and beyond). 

Specific Comments

Executive summary

Page 7 – reference to country typologies being a starting point for biofuels policies.   This doesn’t seem to include either trade or energy resources as part of the analysis.

Page 8 – the “division of labour” argument between developing and developed countries does not seem well conceived. The paragraph which starts off with wood and talks about biorefineries seems not well grounded.

Page 9 – the paragraph that “ a substantial fraction of each ton of crop diverted to biofuels comes out of consumption by the poor”  needs thorough substantiation.    Many of the really poor are not touched by commercial markets.

• The paragraph that bioethanol is responsible for the increase in the price of corn since 2004 – needs thorough substantiation.  It is clearly one factor but there are a lot of others, particularly as virutally all commodities have seen price rises, including those not used for biofuels.

Page 10 – The references to land grabbing.  Authoritative sources are needed here as to how much this is really to do with biofuels.  Early analysis by World Bank would suggest it is much more a matter of foreign national governments trying to secure food production for thier people.

Draft policy recommendations

P13 – para 1.      “the central role of biofuels in provoking high and volatile prices”   is not fully substantiated by this report in its current state.   Therefore the policy outcome that its growth needs to be controlled is not well grounded.   

P14

• Para 2.  The “massive displacement of traditional communities” needs substantiating.  This is not all biofuels related.
• Paras 6 and 7    The reference to using only certification schemes that are multistakeholder is not practical or accurate.  Certification is about other things than responsible land use, and there are other ways of dealing with responsible land use than certification.  Certification is only one option. There are other ways of ensuring sustainable ag such as regulatory standards, incentives, and other government interventions.   Certification is a way of loading costs into the supply chain – the added value needs to be very clear.
• Para 8 – the typologies reference seems to exclude both trade  - which seems to go down the self sufficiency route – and also energy policy and other energy sources.
• Para 9 – the idea that the developing world is a biomass provider to the developed world in biofuels discussions is nonsense.  The US grows its own corn.  Europe grows its own rapeseed.  Sure there is some trade in biofuels feedstocks but it is small – because biomass is fundamentally expensive to transport.

Intro

P17   - There is a reference to the EU having an increasing level of food imports due to climate insecurity.   This needs substantiating: the EU is the world’s biggest importer and exporter of food and ag products.

P18-19   - The section on the EU is somewhat misleading.   The EU has always imported soybeans primarily for the meal.  

P25 – Again the reference to Argentina is misleading because the key driver is the demand for meal. 

P26 – the EU has issued a proposal – it is not agreed yet. Biofuels policies remain somewhat experimental and changing – look at all the different ones in member states of the EU as one example.

The whole piece about “emerging global market for biofuel” seems mistaken.   The idea of a dedicated attempt at a global market just doesn’t ring true.

P27 – the country typology model seems to ignore trade issues and anything to do with other energy resources. 

P32 – the speculation about the location of second generation biofuels seems confused and unhelpful.  It is only speculative and cannot be grounded in research. While best removed from the report, at a minimum it must also point to the improvements that second generation biofuels could offer.

P34 – There are various models around trying to estimate indirect land use change:  this remains an emerging science and the models should be treated with caution.   The argument about the effect on the hungry is highly complex and inadequately draws conculsions regarding biofuels.  The numbers of the hungry fluctuate and factors such as political stability, local weather, and other factors are key – both in price and availability.  Biofuels demand is only a small factor in price and in some regions minimally so.  In areas of hunger, few have access to commercial markets – so they are much more impacted by local factors.   Also the idea that there is a commonly accepted target that the world should produce 10% of its transport fuels from biofuels is absolutely not established and should not be stated as fact. 

P35 – the demand for biofuels is part of the increased demand that has happened since about 2004.   It is a new source of demand but it is the combined demand on food crops that is important vis a vis supply.   The reason that the supply response to the increased demand has been sluggish has many factors – ranging from stagnating yields to government export bans that disincentivised farmers to produce more.    

It is also important to remember that there has been underinvestment in agriculture because prices were previously low – some of the price increase was a necessary correction to ensure that investment again started to be attracted to the agricultural sector.

Biofuels and Land

Overall - The science of indirect land use change is new and evolving and not currently a sound basis for policy.

P55 – There are some sweeping generalisations about foreign investments that need to be grounded in fact and less conjecture.  For instance, the idea that one third to two thirds of all investments in land are linked to biofuels, particularly when it is still a first generation industry, seems unlikely and is difficult to sustain.

P63 – Certification schemes.    These are presented as the only means of social compliance but there are other ways involving governments and different policy and law enforcement.  More options are needed that better suit a range of national situations and sectors.