In a joint statement on 4 September 2012, the heads of FAO, IFAD and WFP called for a review and adjustment of ‘policies currently in place that encourage alternative uses of grains’ (e.g. certain aspects of biofuel mandates), in line with the recommendations made to the 2011 G20 summit in Paris. The statement was issued against the current background of high international food prices.
On 12 September, a French government spokesperson called for ‘a pause in the development of biofuels competing with food’. It has been reported in the press that the French government has taken the decision to cap the use of crop-based biofuels at 7%, the current level.
Private sector business leaders have also joined the call for a revision of biofuel policies. Paul Bulcke, Chief Executive of Nestlé, has come out firmly against food-crop-based fuel production, arguing that while it was ‘well-intentioned at the time’, it is now ‘an aberration’, and ‘the EU and the US should put money behind the right biofuels.’ Nestlé has been actively lobbying both the EU and US authorities for a review of biofuel targets.
The calls for a pause in development of biofuels are consistent with moves in the EC to ‘impose a limit on the use of crop-based biofuels’, since they are ‘less climate-friendly than initially thought and compete with food production’. According to reports on the EU news and policy website Euractiv.com, EC proposals ‘represent a major shift in Europe’s much-criticised biofuel policy and a tacit admission…that the EU’s 2020 biofuel target was flawed from the outset’. The draft proposal, contained in an EC report on change in land use arising from EU biofuel policies (which also set new emission reduction values for cereals, sugar and oilseed), calls for an end to ‘all public subsidies for crop-based biofuels’, after 2020, when the current legislation expires. Under the proposals, subsidies will only be provided if they lead to ‘substantial greenhouse gas savings…and are not produced from crops used for food and feed’. In addition, ‘the use of biofuels made from crops such as rapeseed and wheat would be limited to 5% of total energy consumption in the EU transport sector in 2020.’ The EC also wants to ‘increase the share of advanced non-land-using biofuels made from household waste and algae’.
The EC proposals are causing concerns among EU biofuel producers, while industry representatives are denying that biofuels policies are responsible for the current high food prices. Speculation, food waste and growing demands in emerging markets are seen by press and market commentators as major factors compounding the effects of the US drought. Biofuel industry representatives maintain that ‘high prices encourage farmers to be more productive’ and that the biofuel market ‘cuts waste in agriculture by turning plant residue into fuel’. Campaigning development NGOs have been blamed for the bad press received by the biofuel industry.
The authors of a report on biofuel use, published by the Institute for European Environmental Policy (IEEP) in June 2012, acknowledge that ‘biofuels alone will not lead to higher prices,’ but that ‘it is clear that there is an impact.’ The report advocates a refocusing of EU policies on ‘improving automotive efficiency, electric vehicles and biofuel derived from waste residue’.
EC proposals to review the biofuel mandate will have little short-term effect on high food prices, since policy changes will not be introduced until 2020, the end date of current policy commitments. In the longer term, however, EC proposals could carry many implications for ACP countries.
Expanded biofuel targets have been one of a number of factors driving expanded demand for cereals and oil crops. Reducing current targets for biofuel use would benefit consumers in net food-importing countries. However, it could also exert a degree of downward pressure on producer prices in what are already volatile markets for ACP-produced crops such as palm oil and sugar.
According to the IEEP report, the largest likely price effects are on ‘oilseeds and vegetable oils that are refined for biodiesel’. The report forecasts that current biofuel policies will contribute in the period up to 2012 to:
- oilseed prices rising by 8–20%;
- vegetable oils rising by 5–36%;
- sugar cane and beet prices rising by 1–21%.
Depending on the extent of the changes brought about by any review of EU and US biofuel policies, prices of sugar, vegetable and oilseed crops could to a certain degree be reduced. The overall effects, however, will depend on wider demand trends, market transparency and the extent to which speculation in agricultural commodity markets is allowed free rein, in an era of heightened price volatility.