News Column

Biofuel Fuels Food Price

Oct 12, 2011

Reaz Ahmad

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A steep rise in biofuel production and a highly concentrated export market coupled with export restrictions have contributed to the rising food prices across the world.

The Global Hunger Index (GHI) 2011, released yesterday, contains these findings.

The index is an annual hunger rating publication of the International Food Policy Research Institute (IFPRI), a Washington-based food policy think-tank.

IFPRI along with two other NGOs-Welthungerhilfe of Germany and Concern Worldwide of Ireland-prepared the GHI for the sixth time this year with special focus on the issue of food price hike and volatility that played a big role in the global food crises of 2007-08 and 2010-11.

"Many poor people already spend large shares of their incomes on food, and surges in food prices leave them unable to pay for the food, health care, housing, education, and other goods and services they need," the report said.

If Bangladesh were to fully compensate the poorest fifth of its households for their losses stemming from higher food prices, the cost would represent an estimated 1.3 percent of total national spending.

According to the GHI, the crises in 2007-08 and 2010-11 were triggered by a complex set of long and short-term factors, including policy failures and market overreactions.

With oil prices at an all-time high, and the United States and the European Union subsidising and setting mandates for biofuel production, the GHI noted, farmers have shifted to cultivation of biofuel crops, and maize production in the U.S. is increasingly used to produce ethanol.

Other countries, including emerging economies like India and Peru, are also going for biofuels, which are derived mainly from crops like sugarcane, maize and soybeans to form alternatives to conventional fossil-based fuels.

"Recent dramatic increase in pro-biofuel policies throughout the developed and developing world poses a major challenge," the IFPRI report said.

Noting that biofuel support is predicted to increase from $20 billion in 2009 to $45 billion by 2020 and to $65 billion by 2035, the report asked both the U.S. and the E.U. to remove all distortive policies and curtail subsidies.

During the 2007-08 food crisis, 15 countries including major producers imposed export restrictions on agricultural commodities. "These restrictions led to lower supplies on the global market and contributed to the crisis by provoking panic buying, hoarding and more export restrictions in other countries, further increasing the amplitude of price movements," noted the 2011 GHI.

Export restrictions have also contributed to the price increases and general market nervousness experienced in 2010 and 2011, it added.

In an IFPRI-organised food security policy workshop in Dhaka last week, the think-tank's senior research fellow Antoine Bouet said Bangladesh might get hurt by the rising global prices of agricultural products due to protectionism of grain-exporting countries.

"Export taxes and export restrictions lower prices domestically [in exporting countries] but increases world food prices, thereby affecting food importing countries like Bangladesh," added Bouet. "Bangladesh is very much exposed in terms of world food crisis."

The GHI 2011 noted that export markets for all staple commodities -- rice, wheat, maize and soybeans -- are highly concentrated in a few countries or very thin (that is only a small share of production is traded). "In the case of both rice and maize, the top five producers account for more than 70 percent of global production, and the top five exporters account for about 80 percent of world exports," the report said.

Citing examples, it said the top five producers and exporters of wheat account for about 50 and 60 percent of global production and exports respectively. The U.S. is by far the biggest global supplier of maize, wheat and paddy rice, as well as the fourth largest supplier of broken rice.

Argentina and France are also among the top suppliers of maize and wheat, and Brazil is among the top producers of maize and rice. China is the largest producer of wheat and paddy rice, as well as the second-largest producer of maize; however, its production is locally oriented.

Besides, climate change could result in more intense and frequent natural disasters (such as droughts and floods), which could trigger significant yield losses, production cuts, and price increases and lead to higher volatility, the GHI apprehended.

As far as hunger scenario is concerned, Bangladesh has remained almost static in the Global Hunger Index 2011, with its hunger situation still at "alarming level".

The report showed Bangladesh's GHI score surged a little to 24.5 from last year's 24.2, which was 24.7 in 2009. The country's GHI score was, however, as high as 35.9 in 1990, marking the hunger situation as "extremely alarming".

The GHI score varies between the best possible score of 0 and the worst possible score of 100. Thus higher score shows greater hunger situation. GHI scores above 10 are considered serious, higher than 20 are alarming, and scores exceeding 30 are extremely alarming.

From the 1990 GHI to the 2011 GHI, 15 countries were able to reduce their scores by 50 percent or more. Nineteen countries moved out of the bottom two categories -- "extremely alarming" and "alarming."

In terms of absolute progress, Bangladesh along with Angola, Ethiopia, Mozambique, Nicaragua, Niger and Vietnam saw the largest improvements between the 1990 GHI and the 2011 GHI.



Source: (c) 2011 the Asia News Network (Hamburg, Germany)


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