Promises and challenges of biofuels for the poor - Highlights from the International Conference on Biofuels (Day 2, part 1)

The second day of the International Conference on Biofuels addressed the issue of how developing countries can participate and benefit from the biofuel revolution. There are many potential risks, from increased food insecurity and competition for land and water, to environmental impacts such as deforestation, soil depletion and biodiversity loss. But if implemented in a sustainable manner and guided by strong policies, biofuel production also offers an unprecedented opportunity for the vast rural populations of the South to get out of poverty, increase incomes and food security, and finally get access to modern energy.

Leading experts in the field debated the issues: Louis Michel, European Commissioner for Development and Humanitarian Aid, Alexander Müller, Assistant Director General of the FAO and Joachim von Braun, Director General of the International Food Policy Research Institute (IFPRI). Ministers from Senegal and the Dominican Republic shared views on biofuels risks and opportunities in their countries. And Simon Trace of the NGO Practical Action looked at some very concrete fields in which biofuels make sense for the poor and where their development should be discouraged.

In this piece, we focus on von Braun's contribution, as the IFPRI - the leading non-governmental food research institute - recently published a major report on the matter, titled "The Promises and Challenges of Biofuels for the Poor in Developing Countries" [*.pdf, 1.8MB], on which he drew profusely.

The issue of 'food versus fuel' is key to the debate, but misunderstood by many and often represented wrongly. From the start, von Braun made the crucial point, reiterated by many at the conference, that:

It is now well understood that food insecurity is a result not simply of a lack of food availability, but poverty. Food-insecure people do not have the income to buy the food that is available. If increased production of biofuels can raise the incomes of small farmers and rural laborers in developing countries, it may in fact improve food security.

Technical potential
Von Braun began by noting that the growing potential of biofuels appears to create a substantial opportunity for the world's farmers. But the key question is whether small-scale farmers and poor people in developing countries can really take advantage of this opportunity.

According to the researcher, energy crops could provide farmers with an important source of demand for their products. About 80 developing countries, for instance, grow and process sugarcane, a high-yielding crop in terms of photosynthesis efficiency that can also be used to produce ethanol. With international sugar prices moving generally downward until recently, partly owing to protectionist sugar policies in some OECD countries, sugarcane production for ethanol has become a more attractive option for developing-country farmers. Other energy crops include maize, soybeans, rapeseed, and oil palm, and many developing countries already grow or could grow these and other potential energy crops.

A modern biofuels industry could also provide developing-country farmers with a use for crop residues like stalks and leaves, which can be converted into ethanol or electricity. Emerging new technologies that convert cellulose to energy might lead to a much higher valuation of "residues," and may in fact make "residues" history in agriculture.

In some cases farmers can grow energy crops on degraded or marginal land not suitable for food production. An oil-bearing crop like Jatropha curcas, for example, produces a seed that can be converted into non-polluting biodiesel. The crop is of special interest because it grows in infertile soil, even in drought conditions, and animals do not graze on it. India has 60 million hectares of waste land, of which it is estimated that half might be used for Jatropha cultivation. The cost of producing biodiesel from Jatropha is just Rs. 20–25 (US$0.43–US$0.54) per liter. The Energy and Resources Institute (TERI) of India announced in February 2006 that it is undertaking a 10-year project, in conjunction with BP, to cultivate 8,000 hectares of wasteland with Jatropha and install the equipment necessary to produce 9 million liters of biodiesel a year. The project will include a complete analysis of the social and environmental impacts of the approach.

Employment opportunities for the poor
Because biofuel production is as labor intensive as agriculture, it may be a boon to rural areas with abundant labor. In Brazil, one study showed that in 1997 the ethanol sector employed about 1 million people. Thirty-five percent of these jobs were temporary harvesting jobs employing many poor migrant laborers from the Northeast, but 65 percent were permanent. Moreover, the number of jobs in manufacturing and other sectors in Brazil created indirectly by the ethanol sector was estimated at 300,000. Many of the jobs created are unskilled, and this situation offers an opportunity for increased income to poor rural people. And according to von Braun, small farmers are not left out: some 60,000 small farmers produce about 30 percent of the sugarcane in Brazil.

'Food versus fuel': a misunderstood and complex issue
Will crop production for biofuels compete with and drive out food production, thereby increasing food insecurity as is often claimed? Not necessarily. Von Braun thinks that energy crop production does not need to lead to increased food insecurity, on the contrary:
biofuels :: energy :: sustainability :: ethanol :: biodiesel :: biomass :: bioenergy :: energy security :: food security :: poverty alleviation :: agriculture :: developing world ::

First, new ways of combining food production with energy production have been developed. Food crop residues like rice and wheat straw, maize husks, and sugarcane bagasse (a fibrous residue) can be converted into biogas, ethanol, and electricity. In other cases energy crops can be targeted to more marginal lands, while food crops can be grown on more favorable lands. In addition, farmers can rotate food and energy crops. Brazilian farmers are increasingly growing sugarcane in rotation with tomatoes, soya, peanuts, and other food crops. Finally, research can—and must—help enhance overall crop productivity, and this is a prime task for the Consultative Group on International Agricultural Research (CGIAR). (See Box 2 for scenarios of future food and fuel production.)

Second, it is now well understood that food insecurity is a result not simply of a lack of food availability, but poverty. Food-insecure people do not have the income to buy the food that is available. If increased production of biofuels can raise the incomes of small farmers and rural laborers in developing countries, it may in fact improve food security. Still, risks for food security remain, particularly if the biofuel sector is not well managed and if oil price instabilities drive food price instability. Destabilizing oil price fluctuations that translate into food price fluctuations may actually be more worrisome than long-term price effects, as the poor have little capacity to adjust in the short run. Opening up trade opportunities for biofuels can dampen price fluctuations. Thus the effects of biofuel expansion on food security depend heavily on policies related to technology and trade.

Challenges in Creating a pro-poor biofuels industry
The high demand for energy and the apparent enormous potential of biofuels are no guarantee that small farmers and poor people in developing countries will receive the benefits. Creating an industry that helps the neediest people improve their lives and livelihoods will require careful management at all levels. This management includes taking the necessary steps to develop a global market and trade regime with transparent standards for biofuels.

The high demand for energy and the apparent enormous potential of biofuels are no guarantee that small farmers and poor people in developing countries will receive the benefits. Creating an industry that helps the neediest people improve their lives and livelihoods will require careful management at all levels. This management includes taking the necessary steps to develop a global market and trade regime with transparent standards for biofuels.

One of the arguments in favor of biofuels is their potential to serve as an environmentally sustainable source of energy. That added social benefit might even justify some level of subsidy and regulation, given that these external benefits are not internalized by the markets. But several environmental aspects of biofuels require attention.

First, biofuels must be produced in a way that results in an output of energy greater than the amount of energy used to produce them—that is, they should have a highly positive energy balance. Maize ethanol, of which the United States is currently the largest producer, has been controversial because until recently it had a negative energy balance. In 2002, however, the U.S. Department of Agriculture stated that maize ethanol had achieved an energy output-input ratio of 1.34:1, thanks to more efficient cultivation and processing practices. Brazil's large ethanol industry based on sugarcane is well established as a net energy producer.

Second, biofuel production must be managed in a way that substantially reduces greenhouse gases compared with petroleum. Maize ethanol produced in the United States may reduce emissions by 10 to 30 percent compared with petroleum, whereas ethanol produced from sugar or cellulose could reduce them by 90 percent or even more. Farmers can contribute to greenhouse gas reductions by adopting cultivation practices that use less petroleum-based fertilizer and fuel and that sequester more carbon in the soil. The greatest potential for reducing greenhouse gases lies in successfully converting cellulosic and lignocellulosic feedstocks—derived from, for instance, trees, grasses, crop residues, and municipal waste—into ethanol. These feedstocks are, however, more difficult to process than starch or sugar crops. A major R&D effort is needed to develop cellulosic ethanol, which could contribute to a much greater expansion in biofuels without adverse consequences.

There are other challenges as well. Like any innovation, increased production of energy crops has the potential to exacerbate socioeconomic inequalities by concentrating benefits on the well-off. It can lead to deforestation, a loss of biodiversity, and excessive use of fertilizers and pesticides, thereby degrading the land and water that poor people depend on. Policymakers must take care to ensure that biofuel production is managed and regulated in a way that avoids these pitfalls. These risks are speculative at present. With improved access to finance and sound policies for support of cooperation and for contract security, most innovations in agriculture can be scale neutral. Under the assumptions of an aggressive biofuel growth scenario—which is not, it must be noted, a prediction—significant price increases for some food crops could emerge in the long run (135 percent for cassava, 76 percent for oilseeds, and 41 percent for maize by 2020) unless new technologies are developed that increase efficiency and productivity in crop production and biofuel processing (see Box 2). Without technologies to improve productivity, the prices changes would adversely affect poor, net-food-purchasing households and would probably exceed the possible income gains by many small farm households.

In addition, in many low-income developing countries, farmers are unaware of the opportunities presented by biofuel production and thus risk missing out on the potential benefits. Public-private partnerships could help raise awareness of these opportunities among farmers in low-income countries.

To develop a biofuels sector that is sustainable and pro-poor, actors at the international, national, and local levels have crucial roles to play. International institutions must help transfer knowledge and technology on developing an efficient and sustainable biofuels industry to poor countries. The international community must also create a level playing field for trade in biofuels. By subsidizing their domestic agriculture and their biofuels industries, the OECD countries are raising the price of grains and feedstock in their own countries and are distorting the opportunities for biofuel production and trade in developing countries. At the national level, policymakers must take steps to create a well-functioning market for biofuels, to promote investment in associated areas like flexible-fuel vehicles and fueling stations, and to regulate land use in line with socioeconomic and environmental goals. They must also provide farmers who wish to grow energy crops with the same kinds of support needed for other forms of agriculture, such as research and extension services, credit, and infrastructure. Finally, local institutions must participate in designing and managing projects to develop biofuels so that poor people and small farmers can gain benefits as both biofuel producers and consumers.

In response to concerns about energy supplies and prices, a number of countries have set standards or targets for biofuels use. The European Union has set a goal of 5.75 percent of motor fuel use from biofuels by 2010. The United States has mandated the use of 28.4 billion liters of biofuels for transportation by 2012. Brazil will require that all diesel contain 2 percent biodiesel by 2008 and 5 percent by 2013, and Thailand will require 10 percent ethanol in all gasoline starting in 2007. India mandates a 5 percent ethanol blend in nine states, and China is requiring a 10 percent ethanol blend in five provinces. Many other countries are taking similar steps.

As countries move to strengthen their energy security by increasing their use of biofuels, they should also work to ensure poor people's and small farmers' participation in the creation of a more sustainable global energy system. With sound technology and trade policies, win-win solutions—that is, positive outcomes for the poor as well as for energy efficiency—are possible with biofuels in developing countries.

References:
Joachim von Braun and R.K. Pachauri: The Promises and Challenges of Biofuels for the Poor in Developing Countries - [PDF 1.8M], November 2006. [Joachim von Braun is director general of IFPRI, and R. K. Pachauri is director general of The Energy and Resources Institute (TERI) in New Delhi, India].

Peter Hazell, and R. K. Pachauri (eds.) 2006, Bioenergy and Agriculture: Promises and Challenges [*.pdf], IFPRI, 2020 Vision Focus 14.