Biofuels 'risk global starvation'  

The FT is making the link between rising commodity prices and resource depletion (exacerbated by the first generation biofuels disaster) - "Financial system faces commodity-led crisis".

The global economy is facing twin shocks. Natural resource markets are delivering a supply shock of 1970s dimensions, while the financial system is delivering a shock comparable to the bank and thrift crises of the 1988-1993 period. The magnitude of each shock is very different. The financial markets require a recapitalisation of the banking system, with estimates ranging from $300bn to $1,000bn.

By contrast, prospective capital requirements in the resource markets dwarf the current needs of the banking system. According to the International Energy Agency, the global energy sector alone needs a real $22,000bn over the next two decades to meet the anticipated rise in primary energy demand. There is also the unavoidable necessity to reduce the CO2 intensity of energy production, a good 80 per cent of which is derived from the dirtiest of fossil fuels. While an accurate quantification of the size of the required green energy investment is not possible, it is likely to be of a similar scale to the expansion of energy supply.

The energy sector is just one example of the more generalised supply problems afflicting the natural resources markets. Scarcity is endemic across most commodity markets, as existing capacity has struggled to meet a demand shock from the rapidly developing middle income economies. Historically low stock-to-consumption ratios show how severely the supply-demand imbalance has eaten into the margins of comfort in many – if not most – commodity markets. Global grain inventories, for example, are at 40-year lows, equivalent to just 15-20 per cent of annual demand. Most industrial metal inventories are at a 30-year trough relative to consumption.

The broad story is of depletion. Most of the easily obtainable resource deposits have already been exploited and most usable agricultural land is already in production. Natural resource discoveries, where they continue to occur, tend to be of a lower quality and are more costly to extract. Meanwhile, the dwindling supply of unutilised land faces competing demands from biodiversity, biofuels and food production.

The Times reports that Britain's chief science advisor that biofuels are pushing up food prices and using food that will be needed to cater for an increased population in the future. He is also concerned about the "insane" conversion of rainforest into biofuel cropland (I'm glad people are catching on at last). One interesting datapoint - US farmland devoted to corn production jumped 15% last year - does anyone have data on how much was at the expense of other crops, and how much was previously fallow land ? (As always, see "The Fat Man, The Population Bomb and The Green Revolution" for further background on this subject).

THE rush towards biofuels is theatening world food production and the lives of billions of people, the British Government's chief scientific adviser said yesterday. John Beddington put himself at odds with ministers who have committed Britain to large increases in the use of biofuels over the coming decades.

In his first important public speech since he was appointed, Professor Beddington described the potential impacts of food shortages as the “elephant in the room” and a problem which rivalled that of climate change. “It’s very hard to imagine how we can see the world growing enough crops to produce renewable energy and at the same time meet the enormous demand for food,” he told a conference on sustainability in London yesterday. “The supply of food really isn’t keeping up.”

By 2030, he said, the world population would have increased to such an extent that a 50 per cent increase in food production would be needed. By 2080 it would need to double. But the rush to biofuels – allegedly environmentally friendly – meant that increasing amount of arable land had been given over to fuel rather than food.

The world’s population is forecast to increase from the six billion at the start of the millennium to nine billion by 2050. Already biofuels have contributed to the rapid rise in international wheat prices and Professor Beddington cautioned that it was likely to be only a matter of time before shoppers in Britain faced big price rises because of the soaring cost of feeding livestock. ...

Last year US President George W. Bush called for a massive increase in the use of ethanol in the US over the next decade. The US now devotes more acreage to growing corn than at any time since 1944. Farmers planted 90.5 million acres in 2007, 15 per cent more than a year before. If White House efforts to double ethanol production this year are achieved, and in due course 40 per cent of that corn ends up in petrol tanks, the world will face a harder and costlier time feeding itself.

A spokesman for Ruth Kelly, the Transport Secretary, insisted that the Government was well aware of the possible negative effects of biofuels. “We take this issue very seriously and we are not prepared to go beyond current target levels for biofuels until we are satisfied it can be done sustainably.”

Professor Beddington said that the prospect of food shortages over the next 20 years was so acute that politicians, scientists and farmers must begin to tackle it immediately. “Climate change is a real issue and is rightly being dealt with by major global investment,” he said afterwards. “However, I am concerned there is another major issue along a similar time scale, an elephant in the room – that of food and energy security. This is giving me and many of my scientific colleagues much concern.” ...

Biofuels have been put forward as a means of reducing the greenhouse gas emissions pumped out by fossil fuels but recent studies have questioned their impact when all factors, such as the use of fertilisers on the crops, are taken into account. Critics have been angered by the loss of tropical rainforests, which have been cleared to allow farmers to grow biofuel crops.

Deforestation has been calculated to account for about 18 per cent of world greenhouse gas emissions and Professor Beddington said that to destroy rainforests in order to grow biofuel crops was “insane”. He added: “Some of the biofuels are hopeless, in the sense that the idea that you cut down rainforest to actually grow biofuels seems profoundly stupid.” He said that human ingenuity was extraordinary and he was confident that food production could be boosted, including by growing genetically modified crops.

Josette Sheeran, executive director of the World Food Program, told the European Parliament in Brussels yesterday: “The shift to biofuels production has diverted lands out of the food chain. Food prices such as palm oil in Africa are now set at fuel prices. It may be a bonanza for farmers – I hope it is true – but in the short term, the world’s poorest are hit hard.”

After Gutenberg has a great graphic showing the environmental cost and net greenhouse gas emissions of various biofuel alternatives, as part of a post on "The Mcgyan Process".

while the Saka method uses super-critical methanol, the Mcgyan process has worked successfully with methanol, ethanol, or propanol. According to the inventors, the Mcgyan process has the following benefits:

* Flexible feedstock; animal or plant sources of lipids can be used. Current waste products can be turned into fuel.
* No use of strong acids or bases in the process.
* Fast reaction times (seconds).
* Cheap feedstocks such as waste grease and animal tallow as well as a variety of plant oils can be converted to biodiesel.
* The metal oxide based catalyst is a contained in a fixed bed reactor thereby eliminating the current need to continuously add catalyst to the reaction mixture thereby reducing the amount of waste produced.
* Unwanted side reactions with free fatty acids producing soaps are eliminated, thereby reducing the amount of waste that must be disposed of properly.
* Insensitive to free fatty acid and water content of the feedstocks.
* The catalyst does not poison over time.

Informed Comment also has a look at food prices in "More on Wheat, Afghanistan, Pakistan, and Global Security".

I previously showed how the rising global wheat shortage and the resultant price increase is feeding conflict (as it were) in both Pakistan and Afghanistan.

The media are starting to catch on to the political implications of the commodity boom. It's not just oil: today's New York Times analyzes A Global Need for Grain That Farms Can’t Fill. Most of the article focuses on how rising prices for grains and other agricultural commodities are reviving the U.S. farm economy. (Of course the article misleadingly uses a few family farmers as examples rather than the multi-national agro-businesses that account for most of the production and market).

An earlier article in the Wall Street Journal (behind subscription firewall, excerpted here) attributed the shortage and price increase to "drought in Australia and poor weather in other grain-producing countries." The Times article attributes it mainly to increasing demand:

Many factors are contributing to the rise, but the biggest is runaway demand. In recent years, the world’s developing countries have been growing about 7 percent a year, an unusually rapid rate by historical standards.

But the Times article also highlights the global implications:

A tailor in Lagos, Nigeria, named Abel Ojuku said recently that he had been forced to cut back on the bread he and his family love.

“If you wanted to buy three loaves, now you buy one,” Mr. Ojuku said.

Everywhere, the cost of food is rising sharply. Whether the world is in for a long period of continued increases has become one of the most urgent issues in economics....

The increases that have already occurred are depriving poor people of food, setting off social unrest and even spurring riots in some countries. . . .

Around the world, wheat is becoming a precious commodity. In Pakistan, thousands of paramilitary troops have been deployed since January to guard trucks carrying wheat and flour. Malaysia, trying to keep its commodities at home, has made it a crime to export flour and other products without a license. Consumer groups in Italy staged a widely publicized (if also widely disregarded) one-day pasta strike last fall.

As I mentioned in the previous post, one of the most common themes in messages from Pakistan since the assassination of Benazir Bhutto has been the wheat flour (atta) shortage, which many people ascribed to the political instability in the country, though it is a global phenomenon. In response, Pakistan has stopped wheat exports to Afghanistan.

As I also reported, rising food prices in Afghanistan are creating a crisis that is so far silent but that could manifest itself in urban riots, increased recruitment to the insurgency, and increased planting of both opium poppy and cannabis to earn cash incomes to buy food at the higher prices.