1. STRAINING THE LINKS BETWEEN BIOFUEL POLICIES AND FOOD INSECURITY IN DEVELOPING COUNTRIES Wyatt Thompson and Ignacio Pérez Domínguez 17 th ICABR Conference, 19 th June 2013, Ravello (Italy)

2. Introduction Fuel versus food debate: – concern about the agricultural commodities used for biofuel production causing food insecurity in developing countries – one-for-one as the extreme case Need for a more nuanced view: – Biofuel expansion not only driven by policies but also by price increases of crude oil – Domestic and international markets have different links  price elasticities have a relevant effect This paper tries to decompose the link between a biofuel policy in a developed country (US) and food use in a group of developing countries (Africa and Asia least developed) OECD Trade and Agriculture Directorate2

3. Steps from a biofuel demand shock in a DVD country to food use in DVG’s OECD Trade and Agriculture Directorate3 Increase in US biofuel mandate (scenario shock) Increase in US corn use for ethanol Reduction in corn exports (US) Reduction in corn imports (developing) Reduction in corn use for food (developing)

4. Methods and Data: Aglink-Cosimo Model Partial equilibrium model: agriculture, fish/seafood and biofuels Co-developed by the OECD (Aglink) and the FAO (Cosimo) Net trade model for representative commodities, world coverage Model release linked to the yearly OECD-FAO publication on medium-term projections for agricultural markets (2013-2022 last week in Beijing) Data coming from experts (country questionnaires and FAO databases) Detailed biofuel module for the major producers: US, EU, Brazil (see next presentation) OECD Trade and Agriculture Directorate4

5. Baseline projections: coarse grain per capita food use (in 2022, kg/person/year) High consumption of coarse grains by African and Latin-American countries

6. Baseline projections: veg. oils per capita food use (in 2022, kg/person/year) High consumption of vegetable oils by Asian and Latin-American countries

7. Scenario: a higher fulfillment of the US Renewable Fuel Standard (RFS) What does this mean? – Higher mandated biofuel blending in the US – Lower than mandated cellulosic production (waiver)  mandate waived but not as low as in the baseline, 5 billion additional liters Implications – Greater demand for conventional biofuel feedstocks in the US: maize for ethanol and vegetable oils for biodiesel – More biofuel production – Higher feedstock prices and less exports from the US – Small effects on developing countries

8. Impacts on grain markets BaselineScenarioAbsolute changePercent change USA biofuel use of coarse grain 150 mt152 mt+2 mt+1.3% USA coarse grain producer price 228.4 usd/t229.7 usd/t+1.3 usd/t+0.6% USA net coarse grain exports 61 mt60 mt-1 mt-1.8% Developing country net coarse grain imports 17.9 mt17.8 mt-0.1 mt-0.5% Developing country coarse grain food use 52.0 mt 0.0 mt0.0%

9. Impacts on vegetable oil markets BaselineScenarioAbsolute changePercent change USA biofuel use of vegetable oil 3.2 mt3.4 mt+0.2 mt7.4% USA vegetable oil producer price 1009 usd/t1010 usd/t+1 mt0.1% USA net vegetable oil exports 1.6 mt1.5 mt-0.1 mt-4.0% Developing country net vegetable oil imports 7.2 mt 0-0.1% Developing country vegetable oil food use 11.8 mt12 mt00.0%

10. How to identify the weakest link? Objective: trace the impacts from biofuel mandate to food use in developing country by identifying the transmission of impacts at each key step Method: push the shock further along in steps 1) RFS increase only (already seen) 2) #1 + shock on US demand for feedstocks for biofuel 3) #2 + shock on US exports of feedstocks 4) #3 + shock on developing country imports of feedstocks 5) #4 + shock on developing country food use of feedstocks Intuition: go from estimated impact to automatic 1-for-1 substitution to see differences

11. Example: steps for coarse grains

12. Coarse grain and vegetable oils used for biofuel in the US change from baseline, million metric tonnes

13. Coarse grain and vegetable oils production in the US change from baseline, million metric tonnes

14. Coarse grain and vegetable oils exports from the US change from baseline, million tonnes

15. Coarse grain and vegetable oils imports in least developed countries change from baseline, million tonnes

16. Coarse grain and vegetable oils food demand in least developed countries change from baseline, million tonnes

17. Ratio : developing country food use impact / divided by intitial shock in feedstock equivalent Demonstrates: weakness of links after each stage Cases : Ratio = 0  no net effect Ratio = -1  a one-for-one trade off Ratio > 0  cross-commodity effects play a role Impact ratios

18. Conclusions The scenarios reveal how expectations of agricultural economists differ from the implicit assumption underlying popular beliefs  the impact of a relatively large shock on biofuel demand for coarse grains and vegetable oils by a major producer, such as the US, on food demand in least developed countries is found to be very small. The impacts are mostly dampened through substitution in trade and domestic markets. Negative calorie consumption effects in developing countries are present once the shock reaches the importing sector of biofuel feedstock commodities. Further research needed to expand the exercise to other major biofuel producers and perform sensitivity analysis

19. Discussion 19 Visit our website: www.agri-outlook.org / www.oecd.org/agriculture www.agri-outlook.org www.oecd.org/agriculture