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Home > India > Business > Business Headline > Commodities

Biofuels: A necessary evil or. . .

Commodity Online | May 20, 2008 08:48 IST

Famished bellies are crying from across the globe and the world's granaries are empty. Still, developed and developing nations are busy converting foodgrains into biofuels to feed their monster automobiles. Here, there is a question of priority for the world to answer. Whose cry for food should be answered first the man or the machine. It seems, if the present indications are anything to go by, nations are turning a deaf ear to the screams of empty stomachs in the world.

Hell-bent on tackling the global warming issues and bust to embrace the so-called development bandwagon, nations are blindly converting food grains like corn into fuel. But, one thing they forget is that you cannot convert thousands of litres of petroleum into a single wheat grain.

If you want to know the story of growing hunger, read on. The great wheat panic of 2007 saw global prices of the grain shoot up by over 92 per cent. Rice and corn prices also rose sharply. Food riots have been reported from Kolkata to Namibia, Zimbabwe, Morocco, Uzbekistan, Austria, Hungary and Mexico. And the Food and Agricultural Organisation declared that 854 million people go hungry around the world. Things are expected to get worse in 2008.

Global consumption of wheat and rice has outstripped production for the past seven years running, except in 2004-05. Production is growing, but population is growing faster. If production is less than demand, then how do people get enough food? Each year, a certain portion of foodgrains is kept in stock, to be used next year. This is now getting used up for meeting excess demand.

Global wheat stocks were down to 107 million tonne in 2007, compared with over 197 million tonne in 2001; rice stocks were just 71 million tonne compared with 136 million tonne. All this means that the future supply of both wheat and rice is becoming more uncertain. That means prices are likely to shoot up further.

India stands at a tipping point, especially as foodgrain production is stagnating. Wheat output was 72.8 million tonne in 2002. This year it is estimated at about 74 million tonne. Rice output was 93.3 million tonne in 2002 and this year it is estimated at about 90 million tonne. Meanwhile, population has increased by about 88 million. So, there will be need for imports.

This, in turn, will fuel global prices. Several nations, which are facing food scarcity, have blamed the US policy of diverting foodgrains such as corn for producing biofuels for the spurt in food grain prices globally. Union Finance Minister P Chidambaram also criticised lack of adequate regulations in the US sub-prime market, which has caused global financial uncertainties.

"It has been estimated that nearly 20 per cent of corn grown in the United States is diverted for producing biofuels. As citizens of one world, we ought to be concerned about the foolishness of growing food and converting it into fuel," Chidambaram said. He said the demand for staple food was on the rise, leading to higher prices, but diverting food for fuel had also contributed to increase in food prices.

"If this had happened in developing countries, we would have been lectured on the virtues of bankruptcy. Since this is happening in developed countries, no one pauses to ask whether all the old arguments are not being made to stand on their head," Chidambaram said. Wondering what had happened to the declaration of the Millennium Development Goals and the inspiring slogan 'Make Poverty History', Chidambaram said, "If we are serious about ending poverty, the place to start is to make food and fuel available at reasonable prices at which people can consume adequate quantities of food and at which fuel becomes not a constraint but a driver of growth."

Joining Chidambaram's concerns is Nobel Peace Prize winner and climate change scientist Rajendra Pachauri. He said: "The world must take care when developing biofuels to avoid perverse environmental effects and higher food prices." He questioned whether the United States' policy of converting corn into ethanol for use as a transport fuel would reduce the emission of greenhouse gases blamed for global warming.

Environmentalists and politicians say the move has raised food prices, distorted government budgets and led to deforestation in Southeast Asia and Brazil. "We should be very, very careful about coming up with biofuel solutions that have major impact on production of food grains and may have an implication for overall food security," Pachauri, chairman of the UN's Intergovernmental Panel on Climate Change, said. Scientists say some kinds of biofuels generate as much carbon dioxide as the fossil fuels they replace.

Supporters, however, say biofuels are the only renewable alternative to fossil fuels and do generally result in greenhouse gas emission savings. Pachauri said it was crucial to look at other ways of producing biofuels, including investing strongly in research and development to convert cellulosic material into liquid fuels, as well as using agricultural residues. Even if all of the American land under cultivation today is used to produce biofuels, US will only be able to meet 6% of its diesel and 12 per cent of its petrol requirements by 2020.

Similarly, some 40 per cent of Europe's cultivated land would need to go under biofuel production to meet the 10% replacement target. Clearly diverting this amount of land currently under cultivation in the US and EU to biofuels is unlikely and the burden of biofuel and grain production would hence shift, in part, to the already stressed developing countries.

It is noted that even with the current level of diversion of soybean cultivation to corn in the US has doubled its price in a year. Prices of edible oils, wheat, corn, rice and other food commodities have also gone through the roof in recent years as more and more land provides the feedstock for biofuels. The world food stocks are at a 25-year low. It is pointed out that the high price of foodgrains does not help the poor and hungry.

It is estimated that for every one per cent rise in the price of cereals the calorie intake of the poor goes down by half a per cent. Thus, instead of eradicating hunger, the world is at a risk of doubling its 800 million hungry by 2030 if it sticks to its plans for growing first generation biofuels based on corn, sugarcane, edible oils and newer crops such as sweet sorghum and jatropha.

Clearly, the roadmap for promoting first generation biofuels is a treacherous one. Yet India and the world must pursue biofuels in an energy-starved world, the choice is not which energy form should the nations pursue, but which other energy form can we pursue. This is even more critical for India where bioenergy is, and shall remain, an important part of its energy mix.

The positive side

And, the rosy side of biofuel is also there. In Brazil, cars have been running on biodiesel for years, while in Sweden, Ford's flex-fuel models are outselling its ordinary petrol and diesel cars. Such progress for the fuel is not primarily due to a particularly environmentally-aware customer base. Rather, it has come about through government incentives.

In Brazil, where biofuel cars now outsell ordinary cars, a state-run bioethanol fuel programme was originally set up for patriotic, not financial or environmental reasons. It was a strategic decision taken by the military government that ran the country from 1964 to 1985, inspired by a desire to reduce its dependence on petroleum imports following the 1970s oil crisis.

Sweden's state-backed bioethanol programme, meanwhile, ensures that there is no duty on the fuel. E85-enabled cars are offered free parking in Gothenburg, Stockholm, and other municipalities. Biofuel cars are also 20 per cent cheaper to insure and are exempt from the Stockholm congestion charge, while both personal and fleet users pay less tax.

But if this sounds like a high economic price to pay for a reduction in carbon dioxide emissions, consider this: Sweden gets more than that for its money. As is the case in Britain, Sweden too needs to create rural jobs, and the biofuels sector has the potential to provide that in spades. Then there is the potential benefit from being at the cutting edge of a new technology; there is even talk of a future where grain is genetically modified to create more efficient biofuels.

The world market for biofuels has expanded rapidly in recent years as combination of domestic politics, rising oil prices, increasing concerns about global warming, and potential economic opportunity have spurred a broad range of countries to pass laws that support biofuel industries.

World biofuel production will track increases in demand as most countries seek to foster domestic biofuel industries, both to reduce reliance upon imported oil and to spur domestic economic development. This will continue to favor the development of cereal-based (maize and wheat) bioethanol capacity in North America and Western Europe, as well as sugarcane-based bioethanol production in Latin America.

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