Blame it on Price-Distorting Agriculture and Trade Policies

The latest controversy over food versus fuel started in February when two different studies theorized that demand for corn to make ethanol would not only increase food prices but also alter global land-use patterns and could have a devastating affect on climate change. But some researchers say the recent hike in food prices is the product of agriculture and trade policies that have caused global land-use patterns to shift over several decades.
By Anduin Kirkbride McElroy | June 02, 2008
The now infamous studies that were published in Science magazine this February claimed that land-use change for biofuel crops actually increases overall greenhouse gases because it incites land-use change elsewhere in the world. These studies, published as food and fuel prices rose, incited a "biofuel backlash," as one mainstream media headline termed it. Suddenly, it seemed as if corn ethanol was being attacked on all fronts, being blamed for higher food costs, fuel costs and even climate change. EPM spoke with an emissions expert and a land-use expert who say that agriculture and trade policies have much more to do with food prices and land-use change than ethanol. They even suggest that ethanol may be helping the situation.

First, it's important to understand what is meant by land-use change impacts, as it's the core of the debate. There are direct and indirect impacts from land-use change. When land is put into production for the first time, there are three primary direct impacts, according to Don O'Connor, president of (S&T)2 Consultants Inc., which specializes in greenhouse gas emissions calculations and transportation policy. The direct impacts are change in soil carbon and change in above ground biomass and nitrogen emissions from the application of fertilizer.

"When you grow any crop and cultivate the soil and add fertilizer, you get emissions that arise from that," O'Connor says. "When you apply nitrogen fertilizer, some small amount ends up adding to the environment. Tilling the soil can change the carbon content, depending. There are also methane emissions independent of cultivation use."

This much is fairly well studied and understood, he says. Greenhouse gas emissions calculations from direct impacts are standardized across the globe and used in compliance with measurements for the Kyoto treaty and national regulations. "Lifecycle analysis models, like GHGenius, allow you to look at where the land you're putting into production comes from," O'Connor says. "You can factor in the soil carbon impact and what the biomass was. You have to develop a scenario on what might happen with soil carbon. You need to understand the future scenario of what you're modeling and whether increased production is coming from fertilizer, land or distillers grains displacement."

Also understood is how to measure a change in these emissions. Practices such as no-till, reducing summer fallow and more precise application of fertilizer have dramatically affected emissions from production agriculture in recent years. "In Canada, the greenhouse gas emissions from land-use change have changed dramatically for the better over the past 15 years," O'Connor says. "Of cropland remaining as cropland, in 1990 there were 2.6 million tons of carbon dioxide equivalent stored in the soil on an annual basis. In 2005, that increased to 10 million tons per year. That's just from changes in agriculture practices."

Less understood are the indirect impacts. The studies published in Science magazine said land conversion affects markets, with the worst case scenario being that farmers in Brazil
are forced to turn rainforest land into farmland to meet the demand for soybeans that American farmers aren't meeting. "All of the studies [in Science magazine] quickly go into chopping down rainforests," O'Connor says. "The fact is the UNFAO (United Nation's Food and Agricultural Organization) says we're only using one-third of the world's arable land.

We could use underutilized pasture land."

Beyond that, O'Connor questions whether the idea of indirect impacts is the right way to look at the issue. "The interesting thing is indirect emissions deal with a future scenario, so no one can be proved right or wrong," O'Connor says. "If you're already doing it, indirect emissions have become direct emissions." He argues that land productivity is really the issue. "I'm not convinced that we need to bring new land into production," he says. "World corn production is 700 million tons per year. We could get about 50 percent more corn without bringing a single additional acre into production."

The many ways to increase productivity include changing the variety of crop that's produced and increasing fertilizer. "There are a lot of things that can be done other than increasing land," O'Connor says. "The studies ignored those. It all has to do with productivity and how much production you can get out of the land. If you don't apply the best techniques, the same amount of land produces less of a product every year. Then you either need more land or better management to get the same amount of product."
Of course, there are impacts from increasing productivity in other countries as well, but O'Connor considers those direct, local impacts. If farmers increased productivity, direct emissions would be increased, but on a per unit of corn basis it's not going to have a significant impact, he says. "Most of the lifecycle analysis has been done on a high-input basis," O'Connor says. No one has looked at a low-input scenario and done a lifecycle analysis on that."

Soji Adelaja, the director of the Land Policy Institute at Michigan State University, agrees that there's a choice between converting land and increasing efficiency. "I'm concerned about implications for chemicals," Adelaja says. "Whenever market demand increases, there are two ways to respond: increase efficiency (chemicals) or increase by putting more land into production. We don't have all the answers. Ethanol is at the beginning, and it will definitely affect the development and use of more land."

The food debate is intrinsically tied to land use, O'Connor says. "It's the question of where does the additional productivity come from. If you increase demand too far, too fast, the systems can't respond. If biofuels can be criticized for anything, it's that they were too profitable in 2004 and 2005. That increased demand, and brought to the forefront a situation that has been simmering on the backburner for a long time."

Driving Food Prices Down
It wasn't too long ago that food policy think tanks and aid organizations were decrying farm policies in the United States and Europe that depressed food prices. That's right, low food prices were the problem. In July of 2003, Kevin Watkins, head of research at the aid organization Oxfam International, wrote an article urging developed countries to reform farm policies. "Industrial country agricultural support is destroying the livelihoods of poor farmers across the developing world, reinforcing an unequal pattern of globalization in the process," he wrote, explaining that northern agricultural policies were destroying the markets on which subsistence farmers depended. "High levels of agricultural support translate into increased output, fewer imports, and more exports than would otherwise be the case. Small farmers in developing countries suffer damage through various channels.

Subsidized exports undercut them in global, and even local, markets, driving down household incomes. Meanwhile, those seeking access to northern markets have to negotiate some of the world's highest trade barriers."

In May of that same year, Africa Recovery, a United Nations organization, concurred in an article by Gumisai Mutume. "The practice of paying such subsidies to farmers in industrial nations is facing increased opposition from developing countries, which charge that subsidies foster unfair trade and flood world markets with cheap goods, thereby eroding
commodity prices."

The subsidies distort the whole commodities trading system, O'Connor says. "We have trade barriers and trade subsidies that are more prevalent than many other commodities," he says. "As a result, we totally distorted commodities. That made it impossible for producers in developing countries to survive. The way the world has responded to the problem of not enough food in the right places in the past has been the wrong thing to do. It's like the proverbial fish. What we've been doing is giving people fish rather than putting in place an environment where people can fish for themselves. We've done that by putting subsidized food products on them."

The subsidies O'Connor is referring to aren't small. "It's hard to find a sector that has had more government involvement in fundamental production economics than production agriculture," he says. "The developed world has been supporting agriculture to the tune of $250 billion for the past 40 years. That represents one-third of farmers' revenue. What that has done has been great for farmers in the United States and Europe, but if you happen to be in a country whose government is so poor they can't afford to subsidize, local farmers can't grow a crop and make money. One could argue that we've had a food crises brewing for the past 50 years. Farmers' ability to plant next year's crops were dependent on their government's ability to bail them out of their current situation. That is not a sustainable proposition."

These backward agriculture and trade policies have significantly contributed to decreased productivity in the developing world. There are, of course, social, political and economic factors as well. For example, look to Haiti's recent rice crisis. According to reports, Haiti went from being almost entirely self-sufficient in rice production to being almost totally dependent on U.S. rice exports, mostly because the local farmers couldn't compete with the cheap grain.

O'Conner points to Peru's sugar industry as similarly affected by trade policy. "I went to Peru and looked at their sugar situation to make ethanol," O'Connor says. "In 2005, they almost had sugar production up to the level it was in 1968. In 1968, the government nationalized the sugar industry and made foreign companies leave the country. By the early 1990s, the industry was depressed and foreigners were brought back in. Most sugar plantations ended up with foreign participation. In 2005, production was almost back up to where it was. You will find examples of that in many countries."

Brazil is an example of distorted corn markets. It is the world's third largest corn producer after the United States and China. "The average yield is 40 percent of what it is in the United States," O'Connor explains. "Instead of 150 bushels per acre, it's 60. Nitrogen fertilizer application is only 20 percent of that in the United States. At $2 per bushel and zero government support, they can't afford to fertilize. They depend on what's leftover from the soybean crop."

"To a certain degree, higher crop prices are a good thing," O'Connor says. "Now, $4 corn means that it's sustainable. A producer in Brazil can afford to put fertilizer on his crop at $4 bushel. If that happens, a producer in an even less developed country can afford to get back into the agriculture business and not be driven by the subsidies of the developed world."

Adelaja cautiously agrees that higher food prices can be goodat least for farmers. "Farmers are price pickers," Adelaja says. "They don't set the price of their productsmarkets set it. Agriculture products are competitive. If farmers are price pickers, profitability will drive up in agriculture. Does that increase in profitability turn into viability? It may bring a new viability to farms that could enhance the long-term viability of agriculture land."

Cost isn't the only reason that many farmers in developing countries can't afford to use production inputs. "Markets are not well defined to provide inputs," Adelaja says. "Theoretically, productivity could increase, but there are some strategic barriers that are not conducive. In many countries we're talking about peasant farmers. They are subsistence farmers who have to feed themselves. If food prices go up can they afford to increase the use of inputs in production?"

Adelaja adds there are many issues that have kept productivity down in developing countries. "There are financial, market, credit and mechanization issues," he says. "They have the whole issue of crop loss and limited access to chemicals and fertilizers. They will have to use inputs more intensely. The chemical part is of most concern. If more countries are increasing productivity to feed themselves, then we need to worry about the environmental implications of increased chemicals. The other thing to keep in mind is that in many developing countries, migration is from rural areas to urban areas. Can rural capacity meet demand? There are real constraints to agriculture development in many countries, and real questions of whether they can even do it."

"This is an extremely complicated issue," O'Connor says. "What bothers me most about these senior officials blaming biofuels for the food crisis is, I think they're trying to divert attention from their actions for the past 40 years. This problem has been brewing for an awful long time. If anything, biofuels have improved sustainability of food in the developed world, and have the potential to do it in the developing world. But they can't do it overnight. They've been kicked around for past 30 years. They have a chance if corn is $4 or $5 per bushel, but they have no chance if corn is $2 per bushel. These government officials who've been bringing us $2 corn have a lot of explaining to do."

Anduin Kirkbride McElroy is an Ethanol Producer Magazine staff writer. Reach her at amcelroy@bbibiofuels.com or (701) 738-4962.