Biofuels and Food Security: Time to Consider Safety Valves?
The rapid increase of biofuel production from agricultural feedstocks has driven grain prices higher and is keeping aggregate cereal stocks low, making the market unusually vulnerable to supply and demand shocks. Not only are commodity prices going through the roof again, but the prospect of further unrest in the Middle East has brought the price of oil over $100 a barrel: at this price, the production of biofuels from agricultural feedstocks becomes viable even in the absence of mandates and subsidies, and is likely to place further pressure on commodity prices. Serious consideration should be given to protection of the most vulnerable consumers who already spend a large share of their income on food. The establishment of call options on grains and oilseeds that governments can purchase from biofuel producers, would allow the diversion of agricultural feedstocks from biofuel production into the food chain in times of acute need. Such options are advisable in developing countries pursuing or contemplating ambitious biofuels programs. They may also make sense in developed countries, in order to safeguard access to agricultural feedstocks for emergency food aid purposes. A larger program might also serve to lessen pressure on global prices in tight markets, in particular if the country in question is a significant producer and exporter of a particular commodity, as is the case for U.S. corn production. The U.S., both the world’s largest producer and exporter of corn, has by its corn ethanol withdrawn about forty percent of that corn from use in feed and fuel. Diversion options for grains used for biofuels should be considered as a means of mitigating against actual food scarcities and steep commodity prices.
September 2010 (Position Paper)
September 2010 (Policy Focus)