<body> --------------
Contact Us       Consulting       Projects       Our Goals       About Us
home » Archive »
Nature Blog Network

    Fuel prices increased three times in Mozambique this year due to high import costs. For this reason, the country is looking into biofuels as an alternative. Mozambique's ministries of agriculture and energy presented a study showing that more than five million hectares of land can be used sustainably in the production of crops that would produce biodiesel fuels. The first phase of a biofuel implementation plan was also presented, identifying the provinces of Inhambane, Zambezia, Nampula and Cabo Delgado as the first to benefit. News24 (Capetown) - July 12, 2007.

    The Malaysian Oleochemical Manufacturers Group (MOMG) has urged the government for incentives and grants to companies to encourage the development of new uses and applications for glycerine, the most important byproduct of biodiesel. Global production of glycerine is currently about one million tonnes. For every 10 tonnes of oil processed into biodiesel, one tonne of glycerine emerges as a by-product. Bernama - July 12, 2007.

    BioDiesel International AG has acquired 70 per cent of the shares in Lignosol, a Salzburg based company that is making promising progress in Biomass-to-Liquids conversion techniques. The purchase price is in the single-digit million Euro range. ACN - July 10, 2007.

    Gay & Robinson Inc. and Pacific West Energy LLC announced today a partnership to develop an ethanol plant in Hawaii based on sugarcane feedstocks. The plant's capacity is around 12 million gallons (45 million liters) per year. The partnership called Gay & Robinson Ag-Energy LLC, will also ensure the continuation of the Gay & Robinson agricultural enterprise, one of the oldest in Hawaii. Approximately 230 jobs will be preserved, and a large area of West Kauai will be maintained in sustainable agriculture. Business Wire - July 10, 2007.

    Water for Asian Cities (WAC), part of UN-Habitat, is extending partial financial support for the construction of several biogas plants across the Kathmandu valley and develop them as models for municipal waste management. The first biogas plants will be built in Khokna, Godavari, Kalimati, Patan, Tribhuvan University premises, Amrit Science College premises and Thimi. The Himalayan Times - July 09, 2007.

    EnviTec Biogas's planned initial public offering has roused 'enormous' interest among investors and the shares have been oversubscribed, according to sources. EnviTec has set the IPO price range at €42-52 a share, with the subscription period running until Wednesday. EnviTec last year generated sales of €100.7 million, with earnings before interest and tax of €18.5 million. Forbes - July 09, 2007.

    AthenaWeb, the EU's science media portal, is online with new functionalities and expanded video libraries. Check it out for video summaries of the latest European research activities in the fields of energy, the environment, renewables, biotech and much more. AthenaWeb - July 04, 2007.

    Biopact was invited to attend a European Union high-level meeting on international biofuels trade, to take place on Thursday and Friday in Brussels. Leaders from China, India, Africa and Brazil will discuss the opportunities and challenges arising in the emerging global biofuels sector. EU Commissioners for external relations, trade, energy, development & humanitarian aid as well as the directors of international organisations like the IEA, the FAO and the IFPRI will be present. Civil society and environmental NGOs complete the panorama of participants. Check back for exclusive stories from Friday onwards. Biopact - July 04, 2007.

    China's state-owned grain group COFCO says Beijing has stopped approving new fuel ethanol projects regardless of the raw materials, which has put a brake on its plan to build a sweet potato-based plant in Hebei. The Standard (Hong Kong) - July 03, 2007.

    Blue Diamond Ventures and the University of Texas A&M have formed a biofuels research alliance. The University will assist Blue Diamond with the production and conversion of non-food crops for manufacturing second-generation biofuels. MarketWire - July 03, 2007.

    African Union leaders are to discuss the idea of a single pan-African government, on the second day of their summit in Accra, Ghana. Libya's Colonel Muammar Gaddafi is championing the idea, but many African leaders are wary of the proposal. BBC - July 02, 2007.

    Triple Point Technology, a supplier of cross-industry software platforms for the supply, trading, marketing and movement of commodities, announced today the release and general availability of Commodity XL for Biofuels™. The software platform is engineered to address the rapidly escalating global market for renewable energy fuels and their feedstocks. Business Wire - July 02, 2007.

    Latin America's largest construction and engineering firm, Constructora Norberto Odebrecht SA, announced plans to invest some US$2.6 billion (€1.9 billion) to get into Brazil's booming ethanol business. It aims to reach a crushing capacity of 30 million to 40 million metric tons (33 million to 44 million tons) of cane per harvest over the next eight years. More soon. International Herald Tribune - June 30, 2007.

    QuestAir Technologies announces it has received an order valued at US$2.85 million for an M-3100 system to upgrade biogas created from organic waste to pipeline quality methane. QuestAir's multi-unit M-3100 system was purchased by Phase 3 Developments & Investments, LLC of Ohio, a developer of renewable energy projects in the agricultural sector. The plant is expected to be fully operational in the spring of 2008. Market Wire - June 30, 2007.

    Siemens Energy & Automation, Inc. and the U.S. National Corn-to-Ethanol Research Center (NCERC) today announced a partnership to speed the growth of alternative fuel technology. The 10-year agreement between the center and Siemens represents transfers of equipment, software and on-site simulation training. The NCERC facilitates the commercialization of new technologies for producing ethanol more effectively and plays a key role in the Bio-Fuels Industry for Workforce Training to assist in the growing need for qualified personnel to operate and manage bio-fuel refineries across the country. Business Wire - June 29, 2007.

    A paper published in the latest issue of the Journal of the American Ceramic Society proposes a new method of producing hydrogen for portable fuel cells that can work steadily for 10-20 times the length of equivalently sized Lithium-ion batteries. Zhen-Yan Deng, lead author, found that modified aluminum powder can be used to react with water to produce hydrogen at room temperature and under normal atmospheric pressure. The result is a cost-efficient method for powering fuel cells that can be used in portable applications and hybrid vehicles. More soon. Blackwell Publishing - June 29, 2007.

    An NGO called Grains publishes a report that highlights some of the potentially negative effects associated with the global biofuels sector. The findings are a bit one-sided because based uniquely on negative news stories. Moreover, the report does not show much of a long-term vision on the world's energy crisis, climate change, North-South relations, and the unique role biofuels can play in addressing these issues. Grain - June 29, 2007.

    Researchers at the Universidad de Tarapacá in Arica plan to grow Jatropha curcas in the arid north of Chile. The trial in the desert, is carried out to test the drought-tolerance of the biodiesel crop, and to see whether it can utilize the desert's scarce water resources which contain high amounts of salt minerals and boron, lethal to other crops. Santiago Times - June 28, 2007.

    India and Thailand sign a Memorandum of Understanding (MoU) that envisages cooperation through joint research and development and exchange of information in areas of renewable sources of energy like, biogas, solar-thermal, small hydro, wind and biomass energy. Daily India - June 28, 2007.

    Portucel - Empresa Produtora de Pasta e Papel SA said it plans to install biomass plants with an expected production capacity of 200,000 megawatt hours per year at its paper factories in Setubal and Cacia. The European Commission gave the green light for state aid totaling €46.5 million, contributing to Portucel's plans to extend and modernise its plants. Forbes - June 28, 2007.

    Petro-Canada and GreenField Ethanol have inked a long-term deal that makes Petro-Canada the exclusive purchaser of all ethanol produced at GreenField Ethanol's new facility in Varennes, Quebec. The ethanol will be blended with gasoline destined for Petro-Canada retail sites in the Greater Montreal Area. Petro-Canada - June 27, 2007.

    According to a study by the Korean Energy Economics Institute, biodiesel produced in Korea will become cheaper than light crude oil from 2011 onwards (678 won/liter versus 717.2 won/liter). The study "Prospects on the Economic Feasibility of Biodiesel and Improving the Support System", advises to keep biodiesel tax-free until 2010, after which it can compete with oil. Dong-A Ilbo - June 27, 2007.

    Kreido Biofuels announced today that it has entered into a marketing and distribution agreement with Eco-Energy, an energy and chemical marketing and trading company. Eco-Energy will purchase Kreido Biofuels’ biodiesel output from Wilmington, North Carolina, and Argo, Illinois, for a minimum of 3 years at current commercial market prices, as well as provide Kreido transportation and logistics services. Business Wire - June 27, 2007.

    Beijing Tiandi Riyue Biomass Technology Corp. Ltd. has started construction on its new fuel ethanol project in the county of Naiman in Inner Mongolia Autonomous Region's Chifeng City, the company's president told Interfax today. Interfax China - June 26, 2007.

    W2 Energy Inc. announces it will begin development of biobutanol from biomass. The biofuel will be manufactured from syngas derived from non-food biomass and waste products using the company's plasma reactor system. Market Wire - June 26, 2007.

    Finland based Metso Corporation, a global engineering firm has received an order worth €60 million to supply two biomass-fired power boilers to Portugal's EDP Producao - Bioeléctrica, S.A. The first boiler (83 MWth) will be installed at Celbi’s Figueira da Foz pulp mill and the second boiler (35 MWth) at Caima’s pulp mill near the city of Constância. Both power plants will mainly use biomass, like eucalyptus bark and forest residues, as fuel to produce together approximately 40 MWe electricity to the national grid. Both boilers utilize bubbling fluidized bed technology. Metso Corporation - June 26, 2007.

    Canada's New Government is investing more than $416,000 in three southern Alberta projects to help the emerging biofuels industry. The communities of Lethbridge, Drumheller and Coalhurst will benefit from the projects. Through the Biofuels Opportunities for Producers Initiative (BOPI), the three firms will receive funding to prepare feasibility studies and business plans to study the suitability of biofuels production according to location and needs in the industry. MarketWire - June 26, 2007.

    U.S. Energy Secretary Samuel Bodman is expected to announce today that Michigan State and other universities have been selected to share $375 million in federal funding to develop new bioenergy centers for research on cellulosic ethanol and biomass plants. More info soon. Detroit Free Press - June 26, 2007.

    A Kerala based NGO has won an Ashden Award for installing biogas plants in the state to convert organic waste into a clean and renewable source of energy at the household level. Former US vice president Al Gore gave away the award - cash prize of 30,000 pounds - to Biotech chief A. Saji at a ceremony in London on Friday. New Kerala - June 25, 2007.

    AltraBiofuels, a California-based producer of renewable biofuels, announced that it has secured an additional US$165.5 million of debt financing for the construction and completion of two plants located in Coshocton, Ohio and Cloverdale, Indiana. The Coshocton plant's capacity is anticipated to reach 60million gallons/year while the Cloverdale plant is expected to reach 100 million gallons/year. Business Wire - June 23, 2007.

    Brazil and the Dominican Republic have inked a biofuel cooperation agreement aimed at alleviating poverty and creating economic opportunity. The agreement initially focuses on the production of biodiesel in the Dominican Republic. Dominican Today - June 21, 2007.

    Malaysian company Ecofuture Bhd makes renewable products from palm oil residues such as empty fruit bunches and fibers (more here). It expects the revenue contribution of these products to grow by 10% this year, due to growing overseas demand, says executive chairman Jang Lim Kuang. 95% of the group's export earnings come from these products which include natural oil palm fibre strands and biodegradable mulching and soil erosion geotextile mats. Bernama - June 20, 2007.

    Argent Energy, a British producer of waste-oil based biodiesel, announced its intention to seek a listing on London's AIM via a placing of new and existing ordinary shares with institutional investors. Argent plans to use the proceeds to construct the first phase of its proposed 150,000 tonnes (170 million litres) plant at Ellesmere Port, near Chester, and to develop further plans for a 75,000 tonnes (85 million litres) plant in New Zealand. Argent Energy - June 20, 2007.

Creative Commons License

Thursday, July 12, 2007

What we really need: a study showing the effects of high oil prices on food

Until now, we have seen reports about the potential effects of large scale biofuel production on food prices. These studies are important, but incomplete because they do not analyse the opportunity costs of competitive biofuels at high oil prices. Some media have drawn the straightforward but quite deceptive conclusion from the studies that biofuels are to blame for ending the era of cheap food. Reality is a bit more complex than this.

What we really need are studies showing the effects of high oil prices on agriculture and food as compared to the effects of biofuels. Why are biofuels produced in the first place? Because they reduce the cost of transport fuels. Take the Brazilian example: a barrel of oil equivalent ethanol costs between US$ 35 and 40. Crude oil currently costs more than US$ 70 per barrel, which makes gasoline without taxes standing at around US$100 per barrel. In short, the biofuel costs a third, to half as much as the refined oil alternative.

In this context it is not difficult to see that ultimately high oil prices are to blame for increasing food prices, and not biofuels. Biofuels may result in costlier food, but the opportunity costs are: even higher food prices and generalised inflation. It is about time some major economic, agriculture and social think tanks start making this comparison.

Transport fuels are used in all economic sectors and thus have impacts not only on food prices, but on the entire economy. This is especially true for developing economies with a high 'energy intensity' (the amount of oil and energy needed to produce an amount of GDP). They suffer most. But even in highly developed economies, high oil prices drive inflation.

There are few studies analysing the effects of high oil prices on food prices, compared to the biofuels effect. A recent analysis [*.pdf] written by LEGC, an expert services firm, does give us some clues, though: it shows that high energy costs, especially those of crude oil, have a far bigger impact on retail food prices than biofuels based on food crops like corn. Note that corn ethanol is used in this study, whereas we urge for a study starting out with a comparison of all types of biofuels, including competitive and unsubsidised fuels such as sugarcane ethanol or palm oil biodiesel. This aside, the findings are important because they indicate that biofuels, by replacing costly oil, slow down the growth rate of the increase in prices for food, as measured by the Consumer Price Index. Put differently, not producing biofuels that replace costly oil, means food prices would increase even faster than they are currently doing:
:: :: :: :: :: :: :: :: ::

The argument is critical: rising oil prices have an impact not only on food prices, but on all sectors of the economy. Biofuel production on the contrary only has a relatively small impact (compared to oil's effect) on food prices, but can replace costly oil and help reduce the over-all effects of oil price related inflation in all sectors of the economy. Energy demand is as price inelastic as food demand, which means it just as important a product for consumers.

According to the study, the spike in US retail food prices is driven by rapidly growing demand, by skyrocketing oil and transportation costs, and by increased processing and packaging costs, a result of increased energy prices. The use of corn for ethanol plays a marginal role, the report finds. What is more, the study also shows that distiller’s grains, a byproduct of ethanol production and a high quality livestock feed, may help put downward pressure on food prices as livestock farmers purchase the grains instead of corn (table, click to enlarge).

The study was written by LEGC, a global expert services firm, and published by the Renewable Fuels Association (RFA) (this warrants some caution, because the RFA is known as a staunch advocate of corn based ethanol).

The purpose of the study titled, "The Relative Impact of Corn and Energy Prices in the Grocery Aisle" [*.pdf] is to examine and compare the impact on consumer food prices resulting from increases in respectively petroleum and corn prices. It found that increasing oil prices have about twice the impact on consumer food prices as equivalent increases in corn prices:
A 33 percent increase in crude oil prices – which translates into a $1.00 per gallon increase in the price of conventional regular gasoline – results in a 0.6 percent to 0.9 percent increase in the CPI for food while an equivalent increase in
corn prices ($1.00 per bushel) would cause the CPI for food to increase only 0.3 percent.
The reason for the larger impact on food prices from petroleum and energy prices stems from the relative importance of energy in food production, packaging, and distribution compared to that of a single ingredient. While petroleum and energy prices affect virtually all aspects of agricultural raw material transportation, processing, and distribution of all finished consumer food products, corn prices affect only a segment of consumer foods – livestock, poultry and dairy.

Corn is an important feed ingredient for livestock and poultry producers and changes in corn prices can have significant impacts on profitability and production. However, meat, poultry, fish, eggs and dairy products account for only a fifth of the CPI for food which, in turn, is only 15 percent of the overall CPI. Crude oil and refined petroleum prices have increased sharply over the past several years and have put considerable pressure on consumers. Energy plays a significant role in the production of raw agricultural commodities, transportation and processing, and distribution of finished consumer food products. Several studies have looked at the impact of increased energy prices on food prices:
  • Reed, Hanson, Elitzak and Schluter utilized three different model structures to examine the impact of a doubling of crude oil prices on the CPI for food. They conclude that the short run impact of a doubling (e.g. 100 percent increase) in crude oil prices would cause a 1.82 percent rise in average food prices in the short run and 0.27 percent in the long run.
  • A more recent analysis published by Chinkook Lee examined the impact of energy price increases as an intermediate input for food processing and concluded that a 10 percent increase in energy prices results in a 0.2709 percent increase in the purchase (consumer) price of food and kindred products prices.
Earlier corn prices also have increased significantly over the past year as the markets have recognized the impact of increasing ethanol production on corn demand. The price of No. 2 Yellow corn at Central Illinois averaged $3.56 per bushel in May 2007, nearly 60 percent higher than yearago levels. The USDA and many private sector forecasters project ethanol production to exceed 15 billion gallons by 2017, utilizing more than 4 billion bushels of corn and maintaining corn prices well above $3.00 per bushel for most of the decade.

LEGC evaluated the impact of an increase in petroleum prices on consumer prices food prices by applying the impact elasticities summarized above to an assumed 33 percent increase in crude oil (the equivalent of a $1.00 increase in retail gasoline prices from current levels). To determine the impact of an increase in corn prices on livestock, poultry, dairy and consumer food prices the authors imposed a 33 percent increase in corn prices (about $1.00 per bushel from current levels) on the current LECG agricultural sector baseline forecast over the five year period 2007 through 2012. This is consistent with the increase in corn prices that has occurred over the past year.

The analyses by Reed and Lee indicate that a 33 percent increase in oil/energy prices would increase retail food prices by 0.6 percent and 0.9 percent. Reed indicates that a 100 percent increase in crude oil prices results in a shortterm increase of 1.82 percent in consumer food prices while Lee reports that a 10 percent increase in energy prices provides a 0.2709 percent increase in retail food prices. Restating these on an equivalent 33 percent basis (1.82 percent times .33 and 0.2709 times 3.3) provides the 0.6 to 0.9 percent range.

The equivalent 33 percent increase in corn prices over the fiveyear period is expected to reduce beef, pork, and broiler production by 2.6 percent between 2008 and 2012 and increase prices by 2.4 percent. Combined with higher turkey, egg, and dairy prices, the CPI for food is projected to increase an additional 0.3 percent. This result is consistent with the 0.2 percent contribution to food price inflation between September 2006 and April 2007 from meat, poultry, fish and dairy and the $1.15 per bushel increase in cash market corn prices.

The authors state that the days of cheap corn are more likely than not over. Livestock and poultry producers who enjoyed low and relatively stable corn (and other feed) prices over most of the past decade are now faced with the challenge of adjusting to an environment of higher feed prices. The new reality is that corn prices are likely to remain nearer to the $3.00 per bushel than the $2.00 per bushel mark for an extended period.

The good news, they write, is that prices may be more stable as corn production expands to meet ethanol requirements and new ethanol feedstocks and technologies emerge. Livestock and poultry producers also will have an incentive to increase use of the ethanol coproduct Distiller’s grains in order to control feed costs. This medium protein feed component can be used in place of corn in a substantial portion of the feed ration. As ethanol production expands, so will production of Distiller’s grains and thus putting downward pressure on prices.

Corn and energy prices both affect consumer food prices. However, since increases in corn prices are limited to a relatively small portion of the overall CPI for food, an increase in corn prices resulting from higher ethanol demand or a supply disruption such as a major drought is expected to have about half the impact of the same percentage increase in petroleum and energy prices.

Biofuels may increase the price of food. But high oil prices increase not only the price of food much more, they also drive inflation and push prices for all goods and services up. In some developing countries, governments are already forced to spend twice the amount of money on importing oil products than on health... In short, all economic and social sectors are impacted by oil.

Let us take an example of the importance of oil in our economy. The clothes we wear are made from cotton that is grown in West-Africa. There, farmers use machinery (harvesters, irrigation equipment) that is powered by liquid fuels. Once harvested, the cotton is transported (needs oil) to ports, where it is shipped (needs oil), to Bangladesh or China, 10,000 miles away. There, the raw product is transported to, and transformed in factories (both steps need oil), and then shipped again to markets in the wealthy West (needs oil). Here, we use our cars to go to shops to buy our clothes. With our new clothes, we go out to have diner, to eat food that was produced by relying on liquid fuels. In short, in all the many steps from production to consumption, oil is required - in countless agricultural, industrial, and service sectors.

And the worst is yet to come. Just imagine what would happen (to the poorest, energy intensive economies) when oil production reaches a peak and a barrel costs US$100 or more. That would be outright disastrous for the world economy.

So it is time major economic, energy and agriculture think tanks join forces to write a clear report showing the opportunity costs of biofuels - that is, the effects of high oil prices on agriculture, industry, and society as a whole. Such a report may well show that biofuels are actually beneficial to all of us (at least when they are produced from crops that make sense and when they are not subsidised).

Such a study would not even address the benefits of biofuels on long-term agricultural production. As is well known, climate change may reduce farm output in vast parts of the world, which would obviously impact food prices tremendously; biofuels are one of the most straightforward ways to mitigate climate change. So there too, the opportunity costs of biofuels should be analysed in the context of long term agricultural production.

More information:
John M. Urbanchuk, The Relative Impact of Corn and Energy Prices in the Grocery Aisle [*.pdf], June 14, 2007

The Renewable Fuels Association: Energy Prices, Not Corn, Chief Reason for Rising Food Prices, Study Finds - June 14, 2007.


Post a Comment

Links to this post:

Create a Link

<< Home