Time for Action: Shaping Biofuel Production and Trade for the Common Good Daniel G. De La Torre Ugarte Scientific Symposium: Food and Fuel: Biofuels, Development, and a Sustainable Bioeconomy Boston, MA February 16, 2008

Characteristics of Biofuels  Easily integrated with combustion engine infrastructure  Feedstock growth & conversion in / around rural areas  Generates a new energy sector in the economy / increases energy services in rural areas  Provides a sustained demand for ag. resources  Reduced GHG emissions by 20% (no land displacement effect)

Biofuels are not The Solution to (: Biofuels are not The Solution to (but could contribute to):  Climate Change  Energy crisis  Economic development / Poverty Reduction

Agriculture and Poverty  Developing world 5.5 billion people 2.5 billion are in households involve in Ag 1.5 billion are smallholder households  800 million people food insecure  80% of food insecure people are in rural areas  In many developing countries: >50% of employment >25% of GDP  Increase in GDP from Ag is twice more efficient for poverty reduction than any sector

Biofuels Expansion took-off when world inventories were declining Source: USDA

Grains for Feed and Fuel Use Source: OECD-FAO Agricultural Outlook OECD © ISBN Feed long term driver of ag. demand Biofuels demand, the straw that broke the camel’s back Developing countries are reproducing diet of the west based on high content of animal protein

Long term trend in agricultural commodity prices Source: International Financial Statistics Online, IMF February 10,2008. Except for real price in 2007, which is estimated by author. 30+ years of declining and or flat prices

Trade off Between Agricultural Prices and Food Security Ag Prices % Food Security P0P0 P1P1 Increase in ag. prices is not necessarily a Bad for food security, specially coming from Low prices

Not all Biofuels are “created” equal  Feedstock  Agricultural production practices  Soil characteristics  Land use and land displaced  Producers / growers  Conversion process  Biofuel and bio-products produced  End use

Global Anthropogenic GHG Emissions Source: Fourth Assessment Report, IPCC (2007) (a) Global annual emissions of anthropogenic GHGs from 1970 to (b) Share of different anthropogenic GHGs in total emissions in 2004 in terms of CO 2-eq. (c) Share of different sectors in total anthropogenic GHG emissions in 2004 in terms of C0 2-eq (Forestry includes deforestation.) 0.26% Searchinger, et al. GHG for ag and forestry is to address the 31% of annual emissions coming. If we take care of this we take care of

Ag Prices Environmental Cost Trade-off Between Agricultural Prices and Environmental Cost P0P0 P1P1 Under current agricultural practices and food consumption patterns, an increase in ag prices could accelerate environmental costs

The Question is  Under which conditions biofuels can be an opportunity for: Poverty reduction Climate change / environmental benefit Energy crisis / energy independence

Biofuels Expansion Strategy  In check with Ag production capacity  Prioritize domestic/local market  Mandates should not drive growth but secure healthy bottom  Incentives must be linked to: Environmental performance Contribution to rural development  Sustainability criteria should play a key role in the development of the sector

Key Element: New Generation Biofuels  To diversify feedstock sources  Improve energy balance and GHG  Diversify fuels produced  Potential for new bio-products, including fertilizers

Strategy for Poverty Reduction  Increase farmers ability to capture larger share of higher prices: Invest in farmers’ access to markets, improving marketing & distribution systems Improve product quality  Democratize access to land, water and productive resources  Invest in research and extension to improve productivity to supply the now profitable local market  Implement programs to ensure access to food for vulnerable population

Expand the Impact of Higher Prices in Food Security Ag Prices % Food Security P0P0 P1P1 Investments directed to improve share of high prices capture by farmers would improve food security

Strategy for Climate Change  Drastically change diet composition towards more efficient sources of protein and food from local origin  Invest in Research & Extension oriented to: Reduce use of fossil based inputs in agriculture Improve management practices which increase the environmental performance of production agriculture Ensure the best use of soils and landscape  Recuperate the complementarity of crop and livestock activities in the farm  Integrate GHG emissions and other environmental impacts into farmers balance sheet

Ag Prices Environmental Cost Higher Ag Prices Create Conditions to Invest in reducing Environmental Cost P0P0 P1P1 Investment in agricultural technologies less intensive in fossil inputs, and in tune with local soil and food habits would reduce environmental cost of agriculture

Trade Issues  Biofuels is an answer to WTO ’ s idea that excess production is causing low prices  Biofuels trade has a role: expand supply, reduce price pressures, use more suitable feedstock available, new opportunities  Biofuels trade brings very high risks: size of energy market, expansion of arable land into sensitive areas, overtake land holdings of small landholders, water conflicts  Biofuels trade needs to be regulated

Institutional Investment  Strengthen land property rights and enforcing mechanisms to protect small holders  Re-develop domestic institutionality to support transformation of agriculture  International food reserve system  Global coordination of biofuel development

Concluding Remarks  If nothing is done, missed opportunity for poverty reduction, agriculture, and climate change  Biofuels could result in a massive transfer of resources to the ag sector, specially in the South.  Biofules provides the profitability to invest in agriculture and radically change what, how, and where we produce  Countries could benefit from biofuels without producing them

Department of Agricultural Economics, Institute of Agriculture University of Tennessee Agricultural Policy Analysis Center Thanks ! Bio-based Energy Analysis Group