Presentation on theme: "Food fuel and food: when competition starts to bite Max Merbis Centre for World Food Studies (SOW-VU)"— Presentation transcript:
Food fuel and food: when competition starts to bite Max Merbis Centre for World Food Studies (SOW-VU)
Hunger amidst plenty One planet with two worlds, where scarcity manifests itself as –Increased demand for feed and biofuels –Hunger and undernutrition, destitution Stylized review of world food situation The food crisis and its causes –Role of emerging countries –Biofuel policies Conclusion: where are we now?
“Terms of trade” Wheat price nominally stable, surging from mid-2007 The longer term: in real terms declining wheat price More general: index of agricultural commodities declines of the past 100 years, by about one percent per year Predicament of the farmer: declining terms-of-trade Adjustment: higher productivity / larger farms Occupational outmigration –Agricultural labor force in 1960s: 10% of labor force, now <3%.
Causes Rising income growth and meat consumption in emerging economies Biofuel policies in EU and US Other (short term) effects –Production shortfalls (Australia) –Weakness of dollar and rise of crude oil price –Volatility on futures markets caused by speculators –Trade constraints imposed by exporting countries
Meat demand in emerging contries Threshold effects, at low and high income –Shift from low to high propensity to consume meat Corroborating effects –Urbanization: shift to ready-to-eat diets –Change in feeding technology: from roaming around the farm to industrial type feedlots based on compound feed Strong driver for pressure on feed (cereals) markets –Mitigated by the high income threshold effect –Mitigated by technological progress in feed conversion
Biofuels policies in US and EU US –EISA legislation (2007) –36 billion gallons of biofuels in 2022 –Lavish subsidies on corn, soybeans, and biomass –Main arguments: import dependence of oil and improving terms- of-trade EU –Biofuel promotion through exemption of excise tax (Member states) –EU-regulation (2003) on biofuel mixing targets: 5.75% in 2010, and plans for up to 10% in 2020 –Main argument: reduction of GHGs and greening the energy sector Can agriculture adjust so fast?
Competition of food and fuel Biodiesel and petrol diesel: near substitutes –Biodiesel from rapeseed oil –Petrol diesel from refining crude oil –Price mechanism drives substitution –Petrol diesel prices acts as floor for biodiesel and thus as a floor for agricultural prices EU policies on mandatory mixing switch off this mechanism –Large implicit subsidization of biofuel producers –Annual subsidy that is increasing when mixing targets go up Direct measures to combat GHGs are to be preferred –Introduction of carbon tax –Flat in C (thus differentiated over fuel types) –Exemption for biofuels (emissions have been sequestered)
Conclusion and prospects The food crisis is primarily a demand crisis –Improvement of safety nets in developing countries –Lack of international policy coordination –Raising agricultural production while protecting the environment Credit crunch –Toxic assets –Colateralization Surge in commodity prices noraml signals a recession Back to normal (?), focus on the real economy, which is a raw material constrained economy How to benefit from high commodity prices? –Resource assessment and appropriate policies