Food and Fuel: Back on the Table
The record summer drought in the U.S.A. is not good for global grain prices, but is a godsend for biofuel critics. As in 2007 and 2008, we are blamed for causing high food prices, but those who know the dynamics of the soft commodity market know better.
The absolute champion for criticizing biofuel policy is the chairman of the largest world food producer. Nestle’s Peter Brabeck positions himself as morally concerned over high food prices as a result of biofuels. His real concern is, of course, reduced profit margins if prices go up. He needs a scapegoat to tell the world that it is the fault of biofuels and nothing else.
His most recent attack was in a July 17 BBC interview where he argues that: “If no food was used for fuel, the prices would come down again—that is very clear.” Yes, obviously. If Nestlé stops producing cookies, prices will go down as well. But that is not the point. If Mr. Brabeck would put today’s commodity prices into a historical perspective, he would have to acknowledge that prices are not at all-time highs, they are relatively low. Low prices are not a good incentive to increase production. Whether a farm is based in Africa or America, the farmer needs to make a living.
It is undeniable that more demand will increase prices at first, followed by more supply, and it cannot be ignored that biofuel policy will have an upward impact on prices. It is highly questionable, however, that an additional demand that represents less than 5 percent of all cereals consumed globally can be called a price-setter. There has been enough evidence that this is not the case. For Mr. Brabeck, telling the true story why he doesn’t like biofuels is too painful. It wouldn’t go down well with the Nestlé shareholders.
The chairman of Cargill is quoted in the same interview. He’s not a great biofuel fan either, but at least he puts things into perspective and underlines what is really driving commodity prices, things such as growing urbanization, more wealthy people eating more and different food and a decrease in investment in agriculture. He also reminds us that much arable land, especially in Africa, is not being used. And, we Europeans keep taking arable land out of production. Where is the logic?
Other favorite critics such as Oxfam also see the present situation as a new opportunity to slam the EU biofuel policy. The head of the EU office crucifies the policy in a July 16 article for the Financial Times. She indirectly blames the EU biofuel policy for the recent impeachment of the Paraguay president. She links conflicts over redistribution of land to the production of soy for EU biodiesel production. Soybeans are exported from Paraguay to Argentina and the oil is shipped to Europe. Knowing that soyoil is a coproduct of soymeal, the causality seems farfetched. Closer to the truth, the EU is importing high volumes of meal to feed animals, that, by the way, can be almost entirely replaced by distillers grains from EU-produced wheat ethanol. So more EU ethanol means less need to import soy meal and, hence, less soy to grow in South America. It’s an easy way to reduce land use. But, to acknowledge this or address the issue of large soymeal imports is not the preferred political message. Suggesting there are good biofuels, and addressing eating habits, is a too slippery slope. So, let’s keep it simple, let’s blame it all on biofuel.
For me, such criticisms are a symptom of opportunism, hypocrisy and reaction. The problems cited above cannot be resolved by abolishing the EU biofuel policy; that would be pure political symbolism without any structural impact. What is needed is a set of policies that address the root causes of the volatility in commodity prices and alleviate its effects, including stricter urban planning and controlled urbanization, more investment in agriculture and innovative farming practices, and building strategic reserves of grain to keep prices in balance as is done with crude oil, to name just a few. Land abuse could be easily addressed, too. The mandatory use of biofuels in the EU resulted in a strict set of mandatory sustainability criteria. Why not add criteria that would make it impossible to import biofuels that have been produced at the expensive of land grabbing?
Author: Robert Vierhout