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Reconciling Estimates: Biofuels and Food Prices
James Hamilton, Econbrowser
The AP describes Lazear’s views on the role of biofuels on rising prices thus: “US disputes IMF on food prices”.
From the article by Desmond Butler:
WASHINGTON (AP) The Bush administration is disputing the International Monetary Fund’s claim that increased production of biofuels is the biggest factor in rising food prices.
The IMF estimates that the shift of crops out of the food supply to produce biofuels accounts for almost half of the recent increases in the global food prices. Rising food prices have made hunger problems in developing countries even more critical of late.
But the administration’s chairman of the Council of Economic Advisers, Edward Lazear, says that biofuel production has played a small part. …
… Hence, the IMF does not say that biofuels are the most important factor in driving up food prices (at least, in this document — it might elsewhere). Similarly, the World Bank also argues that biofuels is a major, but not the major, driver [1].
Still, according to the AP article, nearly a half of the last year’s runup is due to biofuels. How the CEA assessment and the World Bank’s assessment can be reconciled?
First, note that many developed countries, in addition to the United States, also subsidize and/or mandate biofuels production. This point is highlighted by CEA’s estimate that 7.5 ppts of corn price increase over the last year is associated with US ethanol-related policies, and 5.5 ppts with rest-of-world ethanol-related policies (i.e., 13 ppts out of 37 ppts). While this may result in only a small impact on the world food price, it will likely have a very big impact on those who simultaneously devote a large portion of their food budget to corn products, and are not able to easily shift to substitutes. And for these groups, the import of the graph below is being fully felt. [GRAPH]
Second, even Lazear’s testimony acknowledges that over the long term, subsidies will tend to have a substantial impact on food prices. This CRS report cites two studies to that effect. On this there seems, from my reading, to be little dispute.
(19 May 2008)
New Trend in Biofuels Has New Risks
Elisabeth Rosenthal, New York Times
In the past year, as the diversion of food crops like corn and palm to make biofuels has helped to drive up food prices, investors and politicians have begun promoting newer, so-called second-generation biofuels as the next wave of green energy. These, made from non-food crops like reeds and wild grasses, would offer fuel without the risk of taking food off the table, they said.
But now, biologists and botanists are warning that they, too, may bring serious unintended consequences. Most of these newer crops are what scientists label invasive species – that is, weeds – that have an extraordinarily high potential to escape biofuel plantations, overrun adjacent farms and natural land, and create economic and ecological havoc in the process, they now say.
At a United Nations meeting in Bonn, Germany, on Tuesday, scientists from the Global Invasive Species Program, the Nature Conservancy and the International Union for Conservation of Nature, as well as other groups, presented a paper with a warning about invasive species.
“Some of the most commonly recommended species for biofuels production are also major invasive alien species,” the paper says, adding that these crops should be studied more thoroughly before being cultivated in new areas.
… From a business perspective, the good thing about second-generation biofuel crops is that they are easy to grow and need little attention. But that is also what creates their invasive potential.
… Stas Burgiel, a scientist at the Nature Conservancy, said the cost of controlling invasive species is immense and generally not paid by those who created the problem.
(21 May 2008)
Biowar I: Why Battles over Food and Fuel Lead to World Hunger (book)
Mark Edwards, Azsustainably
Burning 100 million tons of our primary food for fuel is unsustainable and wastes non-renewable resources, especially water. Growing massive amounts of corn represents ecological suicide as it drains trillions of gallons of non-replenishable groundwater, spikes food and fuel prices, decimates food exports and threatens millions with starvation from a food cascade.
Biowar I inflicts costs, casualties and catastrophe in a magnitude far greater than a conventional war. Taxpayers are forced to pay $43 B annually to subsidize erosion and pollution of our air and water for a tiny, 2.4%, replacement of foreign oil. America has insufficient disposable cropland, water or energy to waste on a policy that fails its objectives.
Compared with biofuel alternatives:
• Corn requires more water, land, fertilizer, herbicides and pesticides
• Severely pollutes air, soils, rivers, lakes and well-water
• Degrades and erodes soils at the rate of 6 tons per acre
• Grows slowly and produces a low energy biomass yield, 3%
Corn ethanol is not sustainable. It consumes too much water, land, fertilizer and energy. The direct and indirect costs of the ethanol industry are neither sustainable nor sensible for farmers, consumers, taxpayers or food support recipients.
Biowar ? offers sustainable alternative to corn ethanol, algae which does not compete for food cropland, uses 0.001 as much water and creates an ecologically positive footprint. Algae is over 30 times more productive than corn and can be made into higher value products such as jet fuel and green diesel. The coproducts from algae, proteins and carbohydrates, may have more value for food, medicines, animal feed and low energy input fertilizers than the oils used for making jet fuel.
(May 2008)
“Biowar I” is a book by Mark Edwards, PhD, a professor at Arizona State University.
Biowar I (FAQ and summary) (10-page PDF)
At Google Books
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Author bio (Arizona State University):
Mark R. Edwards earned a B.S. in mechanical engineering, oceanography and meteorology, at the U.S. Naval Academy. He has an M.B.A. and Ph.D. in marketing and has taught food marketing, leadership, world future and entrepreneurship for 30 years in the Morrison School of Management and Agribusiness. His industrial experience includes service as personnel director for a Fortune 50 firm. He has done extensive research and consultation with such organizations as GE, J&J, HP, Intel, Dow, Bank of America, Monsanto, Fed Ex, Motorola, GM, NCR, Westinghouse, Disney, Kodak, NCR, DuPont, and 3M. …
