Food vs. fuel: State of the debate

by Carol Healy, MEM/MBA Class of 2014 and Dan Vermeer, Executive Director of EDGE

Food security is back in the news.  According to estimates, this summer’s drought is the second most costly natural disaster in US history, after Hurricane Katrina – including serious impacts on our country’s agricultural system.  Agriculture feeds us, but increasingly it also provides our fuel.  This post will explore the growing connections between our food and fuel, and the consequences of linking these critical systems.

The story begins in 2008 when the “Global Food Crisis” sparked a heated debate about the role of biofuel production in global food price increases and volatility. As food prices plummeted the following year and the Great Recession took media precedence, this debate appeared to go dormant in American media streams.  However, the historic food price peak in 2011 combined with the recognition that price and volatility will increase in the near future may have put the debate back on the map.

Drivers of Food Prices

There is little doubt that converting agriculture land from food to biofuel production inadvertently increases global food prices. But the argument has always been by how much as biofuel production is one of many factors that drive food prices. Historically, weather has been the leading cause in spikes of commodities prices but now, volatility is increasingly driven by the unstable food supply and demand equation. A growing global population that is expected to require 50% more food by 2030 and the rising wealth and affluence of roughly 3 billion people that are moving up the food chain are significantly increasing demand.  Factors associated with climate change (changing weather patterns, increased frequency in weather shocks, etc.), water resource constraints, soil erosion and degradation and volatility of oil prices put heavy constraints on supply. Consequently, volatility keeps food prices high as farmers are unsure how to price products.

Biofuel production is a double whammy as it affects both sides of the agricultural supply and demand equation. All current ethanol and biodiesel crops are derived from the edible parts of food crops. This sets the stage for direct competition for grain harvest. Further, the global rate of demand increase for grain biofuels is much greater than for food. Ideally biofuels would be grown on marginal land. However, profitability of energy crops has caused farmers to shift production from food to fuel crops thus reducing the amount of land available for food production.

Global biofuel production growth and world hunger

The biofuel market will continue to grow as the price of fossil fuels rises, demand for transport energy increases with population growth and rising affluence and the desire for energy security and low carbon agendas drive policy agendas. Governments are currently the biggest players in the biofuels industry as they oversee activities of many biofuel participants, fix prices, determine profitability, subsidize biofuels and set mandatory targets for blending of biofuels in transportation fuels.

The poor are feeling the grunt of these governmental mandates and domestic agendas. Food prices in some countries are at an all-time high, particularly among the poorest nations. As volatility increases, farmers, consumers & countries become more vulnerable to poverty & food insecurity. While a 20% increase in food prices is not favorable for any household, it severely impacts poor and developing countries that spend a large percentage of their total spending on food. The average household in Indonesia, for example, spends 43% of total spending on food as opposed to the average American household that spends seven percent.  Twenty seven percent of the world’s population is living in absolute poverty and 925 million people are undernourished.  According to the World Hunger Education Service, this is in large part due to the significant increase of food prices over the last few years which has been detrimental to those households that only can afford to spend a few dollars a day.

Second-Generation Biofuel

Many argue that second-generation biofuels are the future of biofuel growth, seeing this as a “win-win” solution to grow food and use crop byproducts for energy. Second generation biofuels, or cellulosic biofuels, are derived from biomass that would otherwise be waste (i.e. pulp, husk or stems of food crops) or low-value non-food crops such as switchgrass, jatropha and marine algae. These crops can be harvested from degraded land that is not suitable for food production and are associated with less greenhouse gas emissions because crops can more efficiently be converted from feedstock to biofuel. Currently, no commercially viable biorefineries exist for converting cellulosic biomass to fuel due to technological challenges and cost hurdles. Some argue that commercialization is far off. Controversial to many, the US government mandates use of cellulosic fuel despite no commercial production. However, in August 2011 the Obama Administration funded a $510 million project with the US Navy for advanced biofuels, including cellulosic. While cellulosic biofuels may have potential, there are still environmental concerns. If not managed correctly, removal of organic matter will affect the carbon and nutrient balance of the soil which could affect crop production and carbon sequestration.

Sustainability of Biofuels

After accounting for agricultural and production inputs, the Net Energy Balance Ratio for some biofuel crops can be less than one which renders them not advantageous to conventional fossil fuels. (The net energy balance ratio is the output of usable energy divided by the input of fossil-fuel energy needed to produce the energy.) According to a leaked European Commission evaluation of biofuels, biodiesel made from palm oil, soybeans and rapeseed (some of the most popular crops) causes more greenhouse gas emissions than fossil fuels and almost as much as tar sands after taking into account energy inputs and indirect land use change (see Figure 1). Current biofuel crops also require other intensive inputs including water and nitrogen. Agricultural water use could increase six-fold if the US Department of Energy biofuel target for 2030 is met using ethanol derived from corn.

Future for Food or Fuel Debate

Because of the environmental and human rights impacts associated with biofuel production, global governmental mandates and targets for biofuel blending have been described as delusional and unethical. Conversely, similar accusations are made if governments are complacent about current reliance on fossil fuels. In reality, the industry has been built in many countries and engrained in public policy and economies. The conversation should really focus on how countries can maintain and grow the biofuel industry while managing unintended consequences of production. Perhaps second-generation biofuels can be a part of the solution.  But before tackling these questions, governments first need to decide where biofuels fall on the policy agenda; agriculture, energy or a hybrid of both.

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