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July

Biofuels and food: Putting things into perspective

July 7, 2008

The world is currently facing a very disturbing rise in food and energy prices. This involves two basic human needs and therefore is a cause for concern among all administrations, including the European Commission. This dire situation has coincided in time with a European plan to achieve 10 percent of all fuel from renewable energy sources, mainly biofuels of agricultural origin. Many believe for this reason that biofuels are one of the causes, if not the main one, of the dramatic increase in food prices. The reality is quite different. European biofuels are not the reason behind the high cost of food; and, in fact, they can help resolve the problem.

Let us examine this one step at a time. According to the impact study that accompanies the European directive on renewable energies, the EU target -10 percent by 2020- requires an increase of 4 million tons annually in consumption of agricultural products for biofuel production. In 2006, according to FAO figures, global grain consumption totaled 2.2 billion tons per year. It is hard to fathom how the demand of 4 million tons per year could affect the price of a 2.2-billion-ton market.

Some think that U.S. corn production may have had a major influence on current prices, but here, once again, the figures tend to prove the opposite. The rise in demand for raw materials for biofuels in the United States from 2006 to 2007 totaled 12.5 million tons in a year. Again, it is difficult to imagine how 12.5 million tons could have an impact on a 2.2-billion-ton market. Curiously enough, this year U.S. corn production met the biofuel demand and, moreover, there was an increase in the exportable corn surplus.

The truth is that the grain that has shown the greatest increase in price is not corn, but rather rice, from which not a drop of biofuel has ever been produced. Globally, the most widely used agricultural product for biofuel production is sugar cane from Brazil, where half of all cars run on bioethanol. Sugar prices, unlike what we might think, have not undergone the price increase of other agricultural products, but are in fact lower now.

In the light of these reflections, it can be clearly seen that the impact of biofuels on the increased cost of food is marginal. What, then, are the causes of rising food prices? Experts point to several factors: on the one hand, poor crops in the United States, Europe and Australia; secondly, a weak dollar - food aid is obtained in dollars... one of the reasons why the World Food Program (WFP) has less purchasing power this year than in previous years; speculation in raw material markets; the rise in world population; growing demand in eastern Asia due to the economic development of China and India; restrictions on exports in the Ukraine and Russia - traditionally the major world suppliers - and, finally, but no less important, increased oil prices - increased transportation and agricultural production costs. We must not forget that one of the few tools the Commission has for lowering oil prices is precisely the promotion of alternative fuels.

The impact of biofuels on increased food prices would be very minor, even if we reach our goal of 10 percent by 2020. In spite of this, the Commission prefers to remain watchful and has included in its directive on renewable energies a monitoring mechanism to assess any impact of biofuels on food prices and production, the environment or workers’ social conditions.

Nevertheless, the risks associated with biofuels should not let us forget their benefits, in the development of countries that are most affected by rising food prices as well. The FAO and other organizations have acknowledged that biofuels may boost investment in agricultural productivity of farmers in Third-World countries. Seventy percent of the poorest people on the planet live in rural areas, where what matters is relaunching the agricultural sector through investments improving productivity. In order to achieve this, one must have the assurance that someone will buy the final product at a good price. Many impoverished countries are located in tropical regions, which are most suitable for producing energy crops such as sugar cane. The 10 percent target guarantees them that Europe will buy this product at a good price, provided that the criteria of sustainability included under the directive are observed. In conclusion, a balanced policy on biofuels, such as the one conceived by the European Commission, could give rise to transferring to impoverished nations a substantial portion of the money that we currently pay to oil-producing countries. If you could choose what to do with the money we spend on gasoline, where would you send it?

* Ferrán Tarradellas is the Energy spokesman for the European Commission.



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