New tension on the horizon between the food and biofuel industries?

Popp, József – Somogyi, Andrea – Bíró, Tamás

Keywords: food security, energy security, biofuel production, second generation biofuel

Between 2006 and 2008 the apparently endless increase of food prices led to unrest and political instability in some parts of the world. The situation is especially grave in the developing countries, where the poorer groups of society spend the majority of their income on food. Agricultural markets have become demand-led markets, not only in terms of quantity (quick increase in demand for both human consumption and industrial processing) but also in terms of quality (the structure of food consumption is changing). There had of course been extreme low and high prices before, but the price shock experienced in the 2007/2008 business year was the combined result of several factors. The primary factor was a reduction in the global stocks of cereals and oilseeds.From the aspect of food security, physical supply is important. People are terrified that they cannot obtain food even if they have sufficient money to buy it, i.e. it is about the risk of access to food. The primary cause of the expected new food crisis is the increase in demand and the fluctuation of supply, as demand for food does not readily adapt to peoples’ income levels. Changes in food supply are primarily determined by trends in water insufficiency. Speculation has an important role in sustaining market liquidity, but may contribute to the volatility of prices. Increasing oil prices are putting the issue of energy security in the limelight, which further boosts biofuel production. In line with the country’s national energy policy, biofuel production so far addresses the demands in the domestic market. In recent years, however, an increase in foreign investments could also be seen. The USA and Brazil are the two largest biofuel markets in the world, while the main recipients of international investments are Brazil and Europe. The attractiveness of Brazil lies in the fact that it has plenty of raw materials and processing capacity, as well as export potential. The US and Brazil are serious net exporters of raw materials used in biofuel production. The EU – the world’s number one biodiesel producer –, on the other hand, is a net importer of oil crops and vegetable oil. The ratio of diesel oil to all fuels consumed is already high at nearly 65% and continues to increase. Consequently, the EU needs to import increasing quantities of diesel oil and is forced to increase its gasoline export. Paradoxically, the region’s position as a net exporter of cereals would be conducive to ethanol production, but the decreasing ratio of gasoline to all fuels consumed means that compared to biodiesel, less ethanol can be mixed.The corresponding figure is 30% in the US, 3% in Europe and 1.5% in China. The amount of cane sugar and sugar beet used for ethanol production exceeds 10% of the annual global production. Still, ethanol production influences the world trade of sugar only mildly, as the ratio and production decisions of combined sugar-and-ethanol plants in Brazil determine how much sugar and ethanol they produce at any given time. As the ratio of processing plants capable of producing both ethanol and sugar is relatively low, the ratio of sugar cane quantities used for ethanol production and for sugar production varies only be a few per cents. The effect of biodiesel production on the global market of vegetable oils is much more significant, as 11% of all vegetable oil produced worldwide was turned into biodiesel in 2009. In the EU-27, two thirds of all vegetable oil produced are used as raw material for biodiesel production. In North and South America, the volume of vegetable oils used for biodiesel production has multiplied over the recent years, now exceeding 10% of the total production.Extensive introduction of second generation biofuels to the market is delayed. The processing of cellulose-based raw materials in bioethanol production, as well as the processing of animal fats and used frying oil for biodiesel production, remains limited. The tension between food and biofuel production, which emerged in the 2007/2008 business year, could resurface when prices begin to rise again in parallel with the reduction in global cereal and oilseed stocks.

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