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The European Biotech Industry Association (EuropaBio) questions the premises and the methods used by recent reports, including the recently leaked and unofficial World Bank internal note (1) which claims that 75% of the recent price increase of food is due to increasing demand for biofuel. The World Bank document downplays poor 2007 harvests, pays no attention to the effects of increased meat consumption in Asia, discounts USDA figures showing that wheat plantings increased in 2007, disregards the impact of increased energy prices on food prices and overlooks the impact of short term export bans and speculation (2). In doing so, and entirely out of step with G8 leaders and FAO policy makers, the World Bank’s internal document almost entirely ignores the benefits that biofuels can bring to farmers in the developing world.

Major one-off effects were downplayed in the document, particularly the poor 2007 rice harvest in several South East Asian countries, which include Thailand and Vietnam, the two biggest rice exporters in the world, and the catastrophic wheat harvest in Australia (3), due to its one-in-a-century drought. Australia lost over 60% of its bread wheat harvest in 2007, and essentially ceased to export. Cereals are not interchangeable; wheat used to make bread cannot be replaced by other cereals for bread making. The Australian lost harvest represented a major blow for international bread wheat trade, and consequently led to vast price increases.

The paper also ignores the structural increase in meat consumption in many Asian economies, and the knock-on effect on demand for animal feed (4). Because of increased meat consumption, China has generated a larger increase in demand for commodity crops than the entire global biofuel sector.

The World Bank document suggests that increased maize plantings in the U.S.A. in 2007 led to decreased planting of wheat and rice (5). USDA production figures show this is simply not true. Wheat plantings in 2007 actually increased, while rice is grown in entirely different environments than the other two major cereals. Production forecasts for both wheat and rice improved greatly in 2008. As a result, the price of these crops has started coming down in recent months.

The cost of producing more than two billion tons per year of cereals is heavily affected by the cost of energy, much more than the 15% suggested by the World Bank paper (6). Nevertheless, agricultural commodities have increased less than energy or other raw materials in the past five years, a tribute to the efficiency and flexibility of farmers. At the same time, the increasing availability of biofuels (2.6% of transport fuel in the EU in 2007) is helping to balance supply and demand. According to a recent Merrill Lynch report, biofuels keep world oil prices 15% lower than they would be otherwise. (7).

The short term export bans on rice in some major production countries to safeguard domestic markets, as well as some speculation, may have made the price spikes worse, but all these reactions to a tight supply situation have also sent a strong market signal to farmers around the world. For the first time in more than a decade, third world farmers can sell their produce at prices that encourage them to plant more and invest in high quality seed and other technology inputs that will increase yield and production.

The World Bank paper ignores these positive developments for the hundreds of millions of third world farmers, and therefore fails to point to effective policy responses for political decision makers: invest in making yield-increasing technology available to farmers and thereby close the supply gap. The potential for increasing crop production is vast. Yield of maize in Africa is one sixth that in the U.S.A., one fifth that in the EU.  Closing half that gap would be more than enough to supply the world with both food and fuel.

Blaming biofuels is not going to resolve the demand challenges that agriculture faces.  “We must support farmers in the developing world and increase their access to modern farming technology. Policy platforms, including the FAO and the G8 summit, have correctly identified these policy measures as the correct ones to address the situation. said Willy De Greef, EuropaBio’s Secretary General.

Biofuels can contribute to meeting the ever-increasing global energy needs and can enhance the security of the world’s energy supply while simultaneously lowering overall GHG emissions. It is regrettable that unofficial and unverified reports be allowed to undermine these efforts.

EuropaBio Biofuels Factsheets
http://www.europabio.org/Biofuels/Biofuels_about.htm
Environmental sustainability criteria for biofuels 
Biotechnology: Making biofuels sustainable 
Biofuels and land use 
Biofuels and food 
Biofuels and developing countries

EuropaBio is the European Association for Bioindustries, solely and uniquely bringing together bioscience companies from all fields of research and development, testing, manufacturing and distribution of biotechnology products. It has 81 corporate members operating worldwide, 5 associate members, 6 BioRegions and 25 national biotechnology associations representing some 1800 small and medium sized enterprises involved in research.

Footnotes

(1)  http://image.guardian.co.uk/sys-files/Environment/documents/2008/07/10/Biofuels.PDF

(2) Claim about relationship between biofuels use and speculation on commodities

The impact of speculation on commodity prices is hard to quantify; the author of the World Bank note attributes price rises due to speculation to biofuels without examining other possible causes. The recent price speculation was mostly focused on rice which is not used for bio-ethanol production as rice is far too expensive for that. As the document is dated 8 April 2008, the author(s) have not seen the fall in wheat and rice futures prices that started as markets became aware of the much better rice and wheat harvest forecasts for 2008-2009.

(3)  Relation between wheat supply and international trade in cereals

The document tries to refute the link between the soaring wheat price of last year and the failed 2006 and 2007 harvests in Australia. It points out that the loss of harvest in Australia “represents only 4% of cereals trade”. That is like comparing apples and fruit.  It is important to note that Australia is the second largest exporter of wheat - after the U.S.

Australian wheat is overwhelmingly bread wheat. It can not be substituted by supplies of maize or any other cereal source for making bread. Therefore, the correct assessment should be to compare the ~10 million tons of lost wheat in Australia with the total world trade of bread making wheat, where the impact of the Australian loss becomes fully visible.

According to the FAO, much of the poor performance of world agriculture in 2006 was due to disappointing cereal production, which fell for the second consecutive year as a result of poor weather conditions. The cereal harvest was especially poor in Australia and the United States where it fell by 60% and 7% respectively. Production was also down in the European Union, Canada, Argentina and South Africa. Additionally, between 2003 and 2008, the price of oil has increased from 25$ to 100$ per barrel, heavily impacting agriculture production, processing and transportation costs.

(4) Increase in meat consumption in China and India
Globally, world meat production has increased by around 65% [1] during the last 20 years, increasing the demand for feed. For the production of 1 kg of meat on average at least 3 kg of cereals are needed. Meat consumption increase is most acute in Indian and China; as the wealth of a country increases, the demand for meat and dairy products tends to increase. Meat consumption in China alone increased from 27 to 59 kilogram per person per year between 1990 and 2005. Each additional kilogram increase on average in China results in a need for roughly 3 million tonnes of animal feed [1]. This has been the one of the largest drivers of the rising price for cereals on the world market.

(5) Claims about maize expansion in the U.S. at the expense of wheat acreage

Table 1 shows USDA statistics about wheat acreage in the US. Since 2003. It shows that in 2007, both planted acreage and yield were better than in 2006 and fully in line with 2003-2005. There has clearly not been a reduction in wheat acreage.

Table 1: recent evolution of wheat planting in the USA (source: USDA NASS)

(6) Claims that high energy and fertilizer prices have contributed only about 15 percent to higher U.S. food crop production costs.

The note does not make the difference between raw material prices and food commodities prices. If high energy prices indeed contributed about 15 percent to higher food crop production costs, it is important to note that energy prices have a two to three times higher impact on retail food prices than raw materials prices. Following the oil crisis in 1973, the price of food soared by 200%. The share of raw materials costs in final products is limited: only 10% for bread, and 20% for chicken in the US. The bulk of the costs are associated with processing and distribution. Therefore, it is dishonest to accuse biofuels of being the main cause of higher food prices. In developing countries however, the price of food is more directly linked to raw material prices.

(7) Merrill Lynch Global Energy Weekly; 06 June 2008

“On a global scale, biofuels are now the single largest contributor to world oil supply growth. We estimate that retail gasoline prices would be $21/bbl higher, on average, without the incremental biofuel supply.”

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