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Nov 02, 2007

Food versus fuel debate escalates

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The biggest disadvantage of biofuels is its potential to compete with food production, said University of Cape Town senior lecturer in economics Jeremy Wakeford, during the September Biofuels Africa 2007 conference. "This is most obvious in the case of maize- ethanol, considering that maize is one of the world's major staple foods. Maize forms the basis of the diet for the majority of South Africans. However, this concern also extends to other feedstocks that are also food products, such as sugar, wheat, and soya, as well as nonfood feedstocks that are grown on land, which could otherwise support food production."

Wakeford said the global biofuels boom is already a contributor to rising world food prices. "This is particularly acute in the case of maize, on account of nearly 30% of US production now being converted into fuel ethanol. This poses a potentially severe threat to food security among the world's poor, especially in Africa."

He added that as food security problems intensify, government might be forced to reduce or eliminate any subsidies to the biofuels industry, although it may be pressured to subsidise food production in a bid to prevent spiralling food prices. "In extreme cases of food insecurity, governments may impose outright bans on biofuels production from edible feedstock, or feedstock that competes for arable land. This would be very costly to those companies which have invested in biofuels processing plants. Additionally, in a likely economic downturn, following the oil peak, subsidies to biofuels producers will likely be cut in the face of competing demands on the national budget." In June this year, Reserve Bank governor Tito Mboweni stated that pressure of inflation emanating from food price increases was expected to persist for some time, and that this may be attributed to international food price developments, which have seen the diversion of grain products to biofuels production, and increased food demand as a result of higher global real incomes.

The National Agricultural Marketing Council reports that prices for primary commodities, such as maize and soya beans, have increased owing to global demands for biofuels. The council states that the rise in global maize and soya bean prices affects not only the price of the final consumer goods, which contain maze and soya bean deriva- tives, but also meat and dairy prices, since both commodities serve as input to the livestock feed markets.

The Council states that through various trade agreements, South Africa's domestic markets are closely tied to the global food markets, and the observed upward trend in global cereal gains, meat, and dairy product prices has important implications to the local food market.

Department of Minerals and Energy (DME) chief director of clean energy Sandile Tyatya said during the Energy Development Corporation's second round table, in April, that the biofuels industry would be competing with food markets in sugar cane, sugar beets, sorghum, wheat, and maize. He also cautioned that this may affect food prices, and that the government might increase incentives to the industry in the final strategy.

Tyatya added that more than 200 submissions had been made on the draft biofuels strategy, and that the DME estimated that over 55 000 jobs would be created by the emerging bioufuels sector, but it now had to meet the costs of develop- ing biofuels and the production plants.

South Africa's current biofuels strategy proposes that biofuels be mixed with fossil equivalents in a 4,5% blend, which will also contribute 75% of the government's renewable energy target of 10 000 GWh, by 2013. It further adds that biofuels supply requires low cost, high yield, and surplus agricultural production, most of which will not be food crops.

Consulting firm Biofuels Industry Development MD Fanie Brink says the single biggest problem in the maize industry in the world, and also in South Africa, is surplus production. "The feedstock for biofuels production will initially be food crops that can also enhance food security. If the area planted with food crops in South Africa is expanded by two- or three-million hectares because of the demand for feedstock for biofuels production, the risk of food shortages will lower."

He says that South Africa has experienced a serious drought this year, and if the market for maize is not expanded to produce ethanol, maize farmers will have to scale production down even further, because of increasing production efficiency.

Brink adds that eventually, when enzyme technology is further developed and at a more advanced and cost-competitive stage, fewer food crops and more biomass can be used to produce biofuels, to achieve higher blending targets.

Brink says South Africa has the agricultural potential to produce enough ethanol to replace up to 20% of the total petrol consumption from grains, and enough biodiesel to replace up to 5% of the total biodiesel consumption. "The production of ethanol from biomass, through the development of new technology, can be increased dramatically to eventually replace an even higher level of petrol consumption, without any negative effect on the food, feed, or fibre supply."

POSITIVE IMPACT


While biofuels is seen as potential competition for food production by some, blaming food inflation on the increased demand for grains to produce biofuel is simplistic, says Southern African Biofuels Association (Saba) president Andrew Makenete. In the latest ‘Agricultural Outlook' report, the Food and Agricultural Organisation highlights the factors contributing to higher agri- cultural commodity prices. These include lower world market opening stocks, an unprecedented demand for agricultural products from China and India in particular, drought, and market inefficiencies. Makenete says the relative weights of these factors have not yet been determined and the Outlook report warns it is premature to attribute a long-term rise in commodity prices to biofuels.

"The true impact of maize-to-ethanol production on international markets is also distorted by the peculiar characteristics of the US maize industry. A study by the US's Centre for Agricultural and Rural Development concluded that maize-to-ethanol production would increase US food retail prices by 10%, and, hence, also world prices," says Makenete.

However, the underlying assumptions of such conclusions must be taken into consideration, says Makenete. "One assumption is that US ethanol import tariffs remain in place. Such tariffs prevent US refineries from sourcing [more cheaply] produced ethanol from, say, Brazil. They also don't encourage US ethanol plants to use a range of feedstocks, which could reduce the acute demand for maize."

Makenete says biofuels present a valuable opportunity for sub-Saharan Africa to attract significant investments into rural areas, promote agricultural development at an unprecedented scale, and provide for import substitution of oil with savings for the national fiscus. The industry can also provide ethanol exports primarily to the north, and overcome the trade distorting effects created by subsidised agricultural commodities.

He adds that Saba is of the opinion that the proposed fuel blend in the draft strategy is inadequate, and that South Africa indeed has the resources to support a 10% bioethanol blend, and a 5% biodiesel blend, and that supplying fuel to captured fleets in South Africa is a realistic expection.

Biofuel crop production, if it prioritises the procurement of feedstock from emerging farmers, presents a unique opportunity to commercialise farming in depressed rural areas and so can contribute to food security, says Makenete. "This is particularly true if biofuels offtakers include existing oil companies who are able to provide a guaranteed offtake for the feedstock produced by emerging farmers."

The voluntary group, Saba, is of the opinion that South Africa should adopt a multifeedstock approach to biofuels production, and not prioritise crops, as is the case in other countries.

"Maize should be included among potential energy crops. This may seem counterintuitive in a food inflationary environment. However, in South Africa, the increased demand for maize created by a biofuels market could reduce the extreme volatilities in the maize price," says Makenete.

Using maize to produce ethanol will immediately increase local demand by between one- and two-million tons, says Makenete. This should ensure the country's maize growing potential is better exploited, and so ease maize price volatility and contribute to food security.

Makenete concludes that bioethanol gel is currently the safest alternative to paraffin in the use of household fuel for the low-cost, or low- income household. "South Africa does not have a strategy to protect the poorest of the poor against accidents caused by paraffin."

Edited by: Laura Tyrer
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