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A. Abbassian Secretary of the Intergovernmental Group on Grains

Food Security with Biofuels? An FAO Perspective Seminar on Impact of Bio Fuel Crops on the Poor and the Agriculture Sector Common Fund for Commodities (CFC) Kuala Lumpur, 26 November 2007. A. Abbassian Secretary of the Intergovernmental Group on Grains

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A. Abbassian Secretary of the Intergovernmental Group on Grains

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  1. Food Security with Biofuels?An FAO Perspective Seminar on Impact of Bio Fuel Crops on the Poor and the Agriculture SectorCommon Fund for Commodities (CFC) Kuala Lumpur, 26 November 2007 A. Abbassian Secretary of the Intergovernmental Group on Grains Food and Agriculture Organization of the United Nations - FAO

  2. Presentation Overview • Why biofuels? Why now? • Bio-energy and biofuels: now and after • Do biofuels reduce consumption of fossil fuels and lower CO2 emissions? • At what cost? • High food prices and biofuels, are they related? • A threat to food security? • Bioenergy activities in FAO: work in progress • Concluding remarks

  3. Bio-energy Today • Bio-energy already accounts for 14% of total world energy use; 33% in developing countries (70% in Africa) but only 2-3% in industrial countries • Small scale burning of biomass accounts for most household source of energy for cooking and heating in poor countries (2-3 billion people!) • Liquid biofuels used for transport still small: 40% of transport fuel in Brazil but only 3-5% in USA and EU and even less elsewhere Source: P. Hazell and R.K. Pachauri (IFPRI, 2007)

  4. Biofuel production in the OECD countries relative to world production (million liters)* *Source: International Institute for Sustainable Development (iisd), Global Subsidy Initiative program (GSI) –September 2007

  5. High food prices and biofuels, are they related? Explaining the nature of price linkages... • As energy prices rise, costs of agricultural inputs (fertilizers, pesticides and diesel) increase, putting pressure on agricultural prices • Also biofuels derived from different feedstocks become competitive with fossil fuels at different levels (so-called parity price), putting pressure on the prices of feedstocks • The link weakens as rising feedstock prices make them too expensive as a source of fuel

  6. Competitiveness by feedstock Parity prices: Petrol–Crude oil–Biofuels Various feedstocks and farming/production systems 120 100 80 Crude, US$/bbl 60 40 20 0 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Petrol, US$/l Gasoline-Crude US$ Cane Brazil, top producers Cane, Brazil, average Cassava, Thai oil, 2 mio l/d Maize, US Cassava, Thailand, OTC joint venture Palmoil, MPOB project Mixed feedstock Europe BTL: Synfuel/Sunfuel Source: J. Schmidhuber, FAO ( 2005)

  7. FAO food price index and CRBcommodity and energy indices(1998-2000=100) FAO price indicesfor selected commodities(1998-2000=100) Source: FAO (Food Outlook, November 2007)

  8. Preliminary FAO work on assessing the importance of different factor in price formation* A priori, we may assume that recent grain price hikes are determined, inter alia, by the price of petroleum, stocks in the major grain exporting countries, the US$ exchange rate relative to its major trading partners and in the case of maize, by the quantity of industrial demand – a proxy for biofuel. That is, Ptwt = f(Ptoil,STt wt.mj.ex,XRtUS) Ptmz = f(Ptoil,STtmz.mj.ex,XRtUS,QDtind), VAR models for the above were estimated over the period 1978 to 2007 using annual data. Notes: VAR Unrestricted Model - Based on data for Major Exporters only – All Data Logged - Prices in Real Terms -Oil in Brent *Source: A. Prakash, FAO (2007) Adam.Prakash@fao.org

  9. Factors driving higher grain prices - Can their influences be measured?* Main results** • The specified variables, together, capture around 90% of the variation in grain prices • Statistically, grain prices are strongly influenced by the specified variables • Causality tests (Granger) showed that variations in prices are both caused by past variations in these variables, jointly and individually Relative influences Changes in maize and wheat prices were decomposed by the relative contribution of each variable. Changes in stocks have the greatest influence on prices proportion of change (∆) in maize price explained by changes in: ∆Ptmz ∆STtmz.mj.ex ∆QDtind.∆XRtUS∆Ptoil 0.27 0.35 0.12 0.11 0.15 proportion of change (∆) in wheat price explained by changes in: ∆Ptwt ∆STtwt.mj.ex ∆XRtUS ∆Ptoil 0.44 0.25 0.15 0.16 **Results based on forecast error variance decomposition *Source: A. Prakash, FAO (2007) Adam.Prakash@fao.org

  10. Wheat stocks and price Maize stocks and price Source: FAO

  11. Coarse Grains exporters Coarse Grains stocksand ratios Source: FAO (Food Outlook, November 2007)

  12. Soybeans/Maize nearby futures ratio Maize utilization and exports in the USA Source: FAO (Food Outlook, November 2007)

  13. Biofuels Tomorrow • By 2010 the EU plans to double the share of renewable energy in its primary energy consumption to 12%. Biofuels will increase to 5.75% of total transport fuels • The USA also plans to more than double its current 2% share for biofuels by 2016 but this may accelerate • Brazil plans to increase biofuels share from 37% to about 60% by 2020 • China and India have launched new bio-energy industries Source: P. Hazell (2007)

  14. Projected grain utilization in OECDand non-OECD countries Wheat Coarse Grains Source: OECD-FAO Agricultural Outlook 2007-2016

  15. Outlook for selected world crop prices to 2016(Index of nominal prices, 1996=1) Source: OECD-FAO Agricultural Outlook 2007-2016

  16. A threat to food security? How the Low Income Food Deficit Countries are/could be affected? • What is food security?Food security exists when all people, at all times, have physical, social and economic access to sufficient amounts of safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life • Four dimensions of food security:Availability, Access, Stability and Utilization

  17. Food Security: Availability • Availability of food could be threatened by bio-energy production: • currently, about 14 million hectares (1 % of the world’s arable land) used for liquid biofuel production • 2.5-3.8 % arable land could be used for biofuels by 2030 • and 20 % of the world’s arable land by 2050 Source: FAO - CFS 33rd Session-May 2007

  18. Food Security: Access • Access is influenced directly by food prices and incomes • In the longer run, the competition between food and fuel could be alleviated • The expanding market for biofuel feedstock could contribute significantly to higher incomes for farmers and offer employment opportunities in rural areas

  19. Food Security: Stability • Stability can be disrupted by price volatility • Expanded use of agricultural commodities for biofuel production could increase the volatility of food prices • Increased risks for the environment

  20. Food Security: Utilization • Affected by bio-energy, but less directly so than for other aspects • Utilization is closely linked to health status and access to clean water • Bio-energy could make water less readily available for household use • On the other hand, modern bio-energy could make cooking both cheaper and cleaner

  21. Food security effects of rising pricesacross countries • Rising food and fuel prices will likely compromise food security of countries that are net importers of both food and fuel as their current account deficits increase: • two-thirds of 47 low income food deficit countries (LIFDCs) for which data exist are also energy deficit and • include countries like Bangladesh, Ethiopia, Eritrea, Ghana, Haiti, India, Kenya etc. • Countries that are net exporters of both food and fuel will find themselves in a win-win situation • For countries that are net exporters in one and net importers of the other, the situation depends on the relative size of the food or energy exports and imports

  22. Forecast import bills of total foodand major foodstuffs Source: FAO (Food Outlook, November 2007)

  23. Forecast changes in food import bills of selected LIFDCs: 2007 over 2006 (%) Forecast changes in global food import bills by type: 2007 over 2006 (%) Source: FAO (Food Outlook, November 2007)

  24. Countries in Transition25 million Developed Market Economies9 million Sub-Saharan Africa206 million Asia and the Pacific524 million Near East and N. Africa38 million India212 China150 Latin America and the Car.52 million Who are the hungry? World: 860 million Developing countries: 830 million Source: FAO

  25. World Development Report 2008: • 75% of the world’s poor live in rural areas and most work in agriculture • Majority of the world’s poor will still be in rural areas in 2040 • Agricultural growth is the main engine for poverty reduction • For the two-thirds poorest, income growth originating in agriculture has more impact than income from non-agricultural sectors Source: World Bank (2007)

  26. Which biofuels? Jatropha factor! • Is it economic at current (rising) oil price? • Does it have favorable energy and carbon balances? • Will it conflict with food production? • Can biofuel production be made pro-poor? Scale matters! • Should countries invest in it now or wait for next generation technologies?

  27. Constraints to investment The way forward • Who are the poor and most food insecure relative to bioenergy development? • Identify and respect national priorities about food security and self-sufficiency (maize) • Land and legislation could be serious hurdles to bioenergy investment • Resolve potential conflict over access and control of natural resources • Source of income and energy • Create incentives for reinvestment • Stimulate domestic economy and rural development • Source of export earnings –even as a feedstock? Legislation • No legislation in place for Bioenergy • National Bioenergy Task Force Land Tenure • All land owned by state • Released to villages, state, individuals Infrastructure • Scale matters and the technology is highly capital intensive • Very limited number of roads • Bioenergy proposals always close to existing infrastructure (road or railroad)

  28. Bioenergy activities in FAO: work in Progress... Examples (i) Technical assistance to member countries • Project formulation and technical advisory services • Support the design and implementation of bioenergy policy and programmes • Country studies/projects: Argentina, Belarus, Chile, China, Costa Rica, Croatia, Dominican Republic, Myanmar, Peru and Slovenia • Respond to requests for investment, feasibility and technical support Examples (ii) Cooperation with national, regional and international partners • Secretariat of the Global Bioenergy Partnership (GBEP) at FAO • FAO currently Vice-Chair of UN-Energy, with bioenergy as one of the main programme elements of this interagency mechanism • Increased requests and activity on bioenergy from FAO Reg Offices • FAO partners with numerous intergovernmental organizations

  29. Bioenergy and Food Security (BEFS) Project • Three-year - USD 3.7 million – 11 January 2007 • Guidance on potential effects of bioenergy on food security in developing countries • Started country selection process and development of analytical framework • Capacity-building, policy formulation and technical guidance • National Bioenergy Teams and replicable project models • Legislative Framework Report

  30. Concluding remarks... • high oil prices and the need to reduce greenhouse gas emissions are among the important drivers in this fast expanding sector. • grains/oil plant-based biofuels are becoming a major source of demand but they are expensive to produce and currently rely on high subsidies and market protection • debates on their net energy balance and on their effectiveness in reducing carbon emissions continue • in the meantime, food prices are affected (increasing) although other factors such as low food inventories have had even more significant impacts • there are good reasons to caution against too much reliance on biofuels as a way forward in getting away from using “risky” fossil fuels • but biofuels can empower rural poor farmers in developing countries, to embark on faster income growth and development • assuming access to technology and land tenure as well as availability of adequate infrastructure, capital, legislations, etc. • a carefully planned, tailored, sustainable, bioenergy strategy is needed

  31. Relevant International Meetings/Reports • World Development Report 2008: Agriculture for Development (World Bank, October 2007) • Food Outlook (FAO, November 2007) • World Energy Outlook – 2007 from International Energy Agency (IEA)- provides medium to long-term energy market projections and analysis with China and India as its special foci in this year’s report (7 November 2007) • The Intergovernmental Panel on Climate Change (IPCC) - Synthesis of IPCC Fourth Assessment of the state of knowledge on climate change (17 November 2007) • United Nations Framework Convention on Climate Change (UNFCCC) - Bali, 3 - 14 December 2007 • Food Outlook (FAO, June 2008) • FAO High-Level Conference on World Food Security and the Challenges of Bioenergy and Climate Change 2-5 June 2008 • OECD-FAO Agricultural Outlook 2008-2017 (July 2008) • State of Food and Agriculture 2008 (SOFA), FAO. Focus: Bio-energy (November 2008)

  32. Key FAO contacts on bioenergy Chairman of the Interdepartmental Working Group Jeff.Tschirley@fao.org SOFA 2008 Bioenergy Terri.Raney@fao.org Global Bioenergy Partnership GBEP-Secretariat@fao.org International Bioenergy Platform (IBEP) Website: http://www.fao.org/sd/en2_en.htm

  33. Grains Team in FAO Trade and Markets Division A. Abbassian (Analyst and the Secretary of the Intergovernmental group for Grains) Abdolreza.Abbassian@fao.org Tel: (++39) 0657053264 C. Cerquiglini (Database Management and World Outlook Reports) Claudio.Cerquiglini@fao.org J. Heine (Database Management and Monthly News Report) John.Heine@fao.org S. Ripani (Administrative Assistant) Silvia.Ripani@fao.org FAO Grains Website: http://www.fao.org/es/esc/en/15/53/index.html

  34. MORE IN...... October 2007* November 2007* July 2007 Monthly News Report on Grains *published 6 times a year *published 2 times a year

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