Scrap biofuel support, boosts food costs: agencies

Reuters News
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Posted: Jun 10, 2011 11:18 AM
Scrap biofuel support, boosts food costs: agencies

By Charlie Dunmore

BRUSSELS (Reuters) - Governments should scrap policies to support biofuels, because they are forcing up global food prices, according to a report by 10 international agencies including the World Bank and World Trade Organization.

The report adds to growing opposition to biofuels targets and subsidies such as those in Europe, Canada, India and the United States.

"If oil prices are high and a crop's value in the energy market exceeds that in the food market, crops will be diverted to the production of biofuels, which will increase the price of food," said the report.

"Changes in the price of oil can be abrupt and may cause increased food price volatility," said the report, which also involved experts from the World Food Programme and International Monetary Fund.

Biofuels absorbed around 20 percent of sugar cane in 2007-2009, 9 percent of oilseeds and coarse grains and 4 percent of sugar beet, the report said.

It did not, however, take into account that biofuel by-products can be used to supplement animal feed, somewhat mitigating their impact on food supplies.

Nowhere has the concern about biofuels run deeper than in Europe, which has already set about overhauling its 10 percent biofuels target for 2020 to take account of the impact on land use.

Producers of Malaysian palm oil and European rape seed look set to become the biggest losers in that overhaul, EU officials say.

"Subsidies to first-generation biofuel production lower biofuel production costs and, therefore, increase the dependence of crop prices on the price of oil," said the report, prepared at the request of leaders of the Group of 20 biggest economies.

"Such policies warrant reconsideration," it added. "G20 governments (should) remove provisions of current national policies that subsidize (or mandate) biofuels production or consumption."

France has made tackling food price volatility a priority of its G20 Presidency in 2011 and is leading efforts in Europe to crack down on speculation in commodities markets, which it blames for rising food prices.

G20 agriculture ministers will meet in Paris on June 22-23 to discuss possible policy responses, ranging from increasing market transparency to limiting the speculative positions taken by traders in commodities markets.

Biofuels have also come under increasing scrutiny for encouraging deforestation, a side-effect that can sometimes make their carbon footprint bigger than that of fossil fuels.

(Reporting by Crarlie Dunmore and Pete Harrison, editing by Jane Baird)