EU Commissioner: biofuels have limited effect on food prices

Despite some legitimate but unfounded fears, analyses show that large-scale biofuel production will not have any noticeable effects on food prices. Earlier, EU Energy Commissioner Andris Piebalgs reported that analyses show that biofuels make feed and meat products cheaper, because biodiesel and ethanol production yields a vast stream of waste products that can be used as feed for animals (earlier post).

Today, EU Agriculture Commissioner Mariann Fischer Boel presented analyses showing that the production of ethanol and biodiesel will not significantly impact prices for other food products either. There is a heated debate about whether the EU can deliver on the Commission’s 10% target for biofuels by 2020 (part of the EU's plan to evolve towards a low carbon economy, earlier post), without putting a huge strain on food markets. Speaking to European grain traders of the COCERAL (acronym for "Comité du Commerce des céréales, aliments du bétail, oléagineux, huile d'olive, huiles et graisses et agrofournitures") in Brussels she said this would not be the case.

“Analysis by the commission indicates that, with this target, prices for agricultural raw materials in the EU would increase by 3-6% for cereals, and 5-18% for the major oilseeds. But prices for those raw products influence food prices only to a very limited extent," she said. "The cost of cereals makes up only around 1-5% of the consumer price of bread, which means that bread prices would increase by less than 1% – a hardly perceptible rise.

“The increase in vegetable oil prices would be greater. However, food-manufacturers using vegetable oils can partly replace rapeseed oil with soybean or sunflower oil. Moreover, the higher the level of processing in foods, the lower the share of the cost of vegetable oils in the consumer price. Therefore, in highly processed foods, for example prepared meals and chocolate bars, consumer prices would remain stable.”

Addressing the European Grain and Oilseed Convention, Mrs Fischer Boel added that a proportion of the EU’s biofuel supply would have to be imported:
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“The level of imports depends essentially on the competitiveness of European production of feedstock. We could boost this competitiveness by abolishing set-aside and modifying the cereals intervention system. There will also be a big lift for if second-generation biofuels, based on feedstocks such as straw, become more cost-effective by 2015, as many experts predict."

“Developments such as these will still leave us needing imports. But they would ensure that the level required would not overstretch the sustainable production potential in our main supplier countries. Overall, then, we think that the target of 10% will not create unmanageable tensions in markets, or put resources under excessive strain.”

Earlier, increases in corn prices in Mexico were wrongly blamed on biofuels. According to experts, they were the result of dubious trade regimes, tariffs and subsidies (both for corn as well as for ethanol) for U.S. farmers.

In the developing world, large-scale biofuel production is poised to boost the food security of farmers, whose incomes will increase, allowing them to increase their efficiency in agriculture, and their purchasing power. Poverty, lack of income and lack of access to agricultural inputs and food markets are the key reasons for food insecurity, not lack of land or agricultural potential.

By offering farmers in the South the opportunity to diversify their crop portfolios away from single cash crops, and to grow energy crops for a world market - with ever increasing fossil fuel prices - a huge opportunity emerges for poverty alleviation and strengthened food security.

The fact that the EU as well as other markets are no longer uncomfortable with the fact that they will have to import these biofuels and feedstocks, is good news for people involved in designing development strategies for the Global South.