A. Abbassian Secretary of the Intergovernmental Group on Grains

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A. AbbassianSecretary of the Intergovernmental Group on GrainsFood and Agriculture Organization of the United Nations - FAO

Food Security with Biofuels?An FAO Perspective

Fourth Biomass-Asia Workshop20-22 November 2007

Malaysia

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Presentation Overview I. Why biofuels? Why now?

II. Bio-energy and biofuels: now and after

III. Do biofuels reduce consumption of fossil fuels and lower CO2 emissions?

IV. At what cost?

V. High food prices and biofuels, are they related?

VI. A threat to food security?

VII. Bioenergy activities in FAO: work in progress

VIII. Concluding remarks

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I. Why Biofuels?

Growing scientific evidence is confirming climate change and therefore the need to reduce greenhouse gas (GHG) emissions (carbon emissions)

Plant biomass is energy neutral in that it takes carbon from the air and return it when generating energy (e.g. when used in a car engine)

Reduce dependency (imports) on fossil fuels (oil, coal) – energy security

Fast rise in world demand (driven by Asia) for energy will result in a supply crunch unless OPEC double production by 2030 to 60.6m* b/d (from now 36m b/d). This will require at least $600 billion* investment

A way to reduce farm support policies (subsidies) in rich countries (at least in theory) and to revitalize the agricultural production and rural development in low income countries

Unlike fossil fuel, most countries can produce some form of bioenergy. Producing domestic energy reduces the oil import bill

*Source: International Energy Agency, IEA (November 2007)

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Why Now?

The steady rise in the cost of oil since 2003 and expectation of high long term prices

At the current oil price, production of liquid biofuels from nearly any form of energy feedstock (sugar, maize, rapeseed, etc..) becomes profitable:

Ethanol from sugar cane is economic at oil prices of $30-35 /barrel (Brazil)*

Ethanol from maize is economic at $55 (USA)*

Bio-diesel from oilseeds is economic at $80 (EU)*

*Source: International Food Policy Research Institute, IFPRI (December 2006)

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Parity prices: Petrol–Crude oil–BiofuelsVarious feedstocks and farming/production systems

0

20

40

60

80

100

120

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

Petrol, US$/l

Cru

de

, U

S$

/bb

l

Gasoline-Crude US$ Cane Brazil, top producers

Cane, Brazil, average Cassava, Thai oil, 2 mio l/d

Cassava, Thailand, OTC joint venture Maize, US

Mixed feedstock Europe Palmoil, MPOB project

Source: J. Schmidhuber, FAO ( 2005)

BTL: Synfuel/Sunfuel

Competitiveness by feedstock

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II. Bio-energy Today Bio-energy already accounts for 14% of total world

energy use; 33% in developing countries (70% in Africa) but only 2-3% in industrial countries

Small scale burning of biomass accounts for most household source of energy for cooking and heating in poor countries (2-3 billion people!)

Liquid biofuels used for transport still small: 40% of transport fuel in Brazil but only 3-5% in USA and EU and even less elsewhere

Source: P. Hazell and R.K. Pachauri (IFPRI, 2007)

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Exajoule (1018), EJ

Energy source: Year World OECD non-OECD

All sources 20042 463 231 232

20302 670

20502 850

Biofuels Ethanol 20043 0.84 0.34 0.51

Biodiesel 20033 0.06 0.04 0.02

1.) Potential based on Schrattenholzer and Fischer, IIASA, 20002.) Based on IEA: Key energy statistics, 20063.) Derived from http://www.earth-policy.org/Updates/2005/Update49.htm, Earth Policy Institute

How big is the market for biofuels? Energy production and potential, biofuels and land use

Biomass Actual use 20042 32.5 7.8 24.6

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Biofuels Tomorrow

By 2010 the EU plans to double the share of renewable energy in its primary energy consumption to 12%. Biofuels will increase to 5.75% of total transport fuels

The USA also plans to more than double its current 2% share for biofuels by 2016 but this may accelerate

Brazil plans to increase biofuels share from 37% to about 60% by 2020

China and India have launched new bio-energy industries

Source: P. Hazell (2007)

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III. Do biofuels reduce consumption of fossil fuels and lower CO2 emissions?

Fossil fuels are used in the production and distribution of biofuels, hence the need to look at energy ratios. This is the ratio of available energy delivered per liter of biofuel to the total fossil fuel energy used in its production – calculated over the full production cycle

What is the net carbon savings over fossil fuels measured per mile of transport -- again calculated over the full production cycle?


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Methods vary for calculating energy ratios

What energy inputs to include? Should, for example, the energy used in making agricultural machines or sustaining farm workers be included or just the energy content of direct inputs like diesel and fertilizer?

What energy credit should be given to co-products like cattle feed?


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Energy balance for ethanol from maize

In 2002, the USDA estimated that for ethanol from maize, the energy ratio was 1.25 - 1.5**

Without co-products, the ratio falls to around 1.05 - 1.1

Controversy remains ** For every unit of energy that goes into growing maize and manufacturing ethanol, we get back 25-50% more energy.

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Energy balance for one gallon of ethanol produced from maize in the United States

(David Pimental, Cornell University)

BTU×1000

Farm production

(machinery, fertilizers, electricity, transport, etc.)

40,221

Ethanol production 99,119

Total (not including final distribution to petrol stations)

139,340

Ethanol energy content 77,000

Energy ratio 0.55Source: P. Hazell (2007)

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slide 13/50Source: D. Morris (Institute for Local self-Reliance), 2005

Different views on energy ratios: wide variations in farming practices, farming conditions (e.g. nitrogen fertilizer could represent about 40 percent of all energy used in maize planting.). Also state and type of ethanol facilities (e.g. wet or dry mills, etc...)

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Net carbon savings

Energy crops have the potential to reduce GHG emissions by more than 100% (relative to petroleum fuels) because such crops can also restore carbon in the soil as they grow

When blended with petrol or diesel, most biofuels from grains can reduce carbon emissions by 10-30% per mile travelled, and the savings are greater the higher the fuel blend

Biodiesel from vegetable oils (rapeseed, sunflower seed, soybeans) can save 45-75%

Ethanol from sugar cane can save up to 90%

Source: World Watch Institute (2006)

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0.0

0.2

0.4

0.6

0.8

1.0

2004 2005 2006 2007

EU Rapeseed oil (Bio-disel) EU Wheat (Ethanol)

US Maize (Ethanol) Brazil Sugar (Ethanol)

IV. Biofuels at What Cost? (

US

$ p

er li

ter

of f

uel)

Net Production Cost

Source: FAO

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Support for biofuels were between USD$5.5 billion and USD$7.3 billion in 2006

Biofuels are an extremely high-cost means of reducing greenhouse-gas emissions. Under optimistic projections, it costs some $500 in federal and state subsidies to reduce one metric ton of CO2-equivalent through the production and use of maize-based ethanol, enough to purchase more than 30 metric tons of CO2-equivalent offsets on the European Climate Exchange, or nearly 140 metric tons on the Chicago Climate Exchange

Because the bulk of the subsidies — per-gallon payments, tax exemptions and tax credits — are tied to sales or output and output is increasing at double-digit rates of growth, the rate of subsidy growth is extremely high

Biofuels at What Cost? USA*

*Source: International Institute for Sustainable Development (IISD), Global Subsidy Initiative program (GSI) -October 2006

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Biofuels at What Cost? EU*

Support for biofuels in the EU amounted to around 3.7 billion Euros in 2006

Reduced tax rates for biofuels are the primary source of support in the European Union. Excise tax exemptions are estimated to have cost around Euro 3 billion in 2006, up from Euro 1.8 billion in 2005

Biofuels are an extremely high-cost means for reducing greenhouse-gas emissions. Transfers per tonne of CO2-equivalent removed are estimated to be between 575 and 800 euros for ethanol made from sugarbeat, around 215 euros for biodiesel made from recycled cooking oil, and over 600 euros for biodiesel made from rapeseed. Purchasing CO2-equivalent offsets on the European Climate Exchange would be much cheaper

*Source: International Institute for Sustainable Development (iisd), Global Subsidy Initiative program (GSI) -October 2007

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Applied tariffs on undenatured ethyl alcohol(HS 2207.10) in several representative countries, as of January 2007*

*Source: International Institute for Sustainable Development (IISD), Global Subsidy Initiative program (GSI) –September 2007

“The EU does not have specific tariff lines for fuel ethanol or biodiesel. Most of the ethanol imports enter the EU under the 2207 10 classification (undenatured alcohol with an alcohol content of >80%). Biodisel is imported under classification 3824 90 98 (other chemicals). This provides the opportunity for biofuels to be imported under alternative tariff lines with lower duties “*

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V. High food prices and biofuels, are they related? Explaining the nature of price linkages...

As energy prices rise, costs of agricultural inputs (fertilizers, pesticides and diesel) increase, putting pressure on agricultural prices

Also biofuels derived from different feedstocks become competitive with fossil fuels at different levels (so-called parity price), putting pressure on the prices of feedstocks

The link weakens as rising feedstock prices make them too expensive as a source of fuel

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A priori, we may assume that recent grain price hikes are determined, inter alia, by the price of petroleum, stocks in the major grain exporting countries, the US$ exchange rate relative to its major trading partners and in the case of maize, by the quantity of industrial demand – a proxy for biofuel. That is,

Ptwt = f(Pt

oil,STt wt.mj.ex,XRt

US)

Ptmz = f(Pt

oil,STtmz.mj.ex,XRt

US,QDtind),

VAR models for the above were estimated over the period 1978 to 2007 using annual data.

*Source: A. Prakash, FAO (2007) [email protected]

Preliminary FAO work on assessing the importance of different factor in price formation*

Notes: VAR Unrestricted Model - Based on data for Major Exporters only – All Data Logged - Prices in Real Terms -Oil in Brent

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Main results** The specified variables, together, capture around 90% of the variation in grain prices Statistically, grain prices are strongly influenced by the specified variables Causality tests (Granger) showed that variations in prices are both caused by past variations in these

variables, jointly and individually

Relative influences

Changes in maize and wheat prices were decomposed by the relative contribution of each variable. Changes in stocks have the greatest influence on prices

proportion of change (∆) in maize price explained by changes in:

∆Ptmz ∆STt

mz.mj.ex ∆QDtind. ∆XRt

US ∆Ptoil

0.27 0.35 0.12 0.11 0.15

*Source: A. Prakash, FAO (2007) [email protected]

Factors driving higher grain prices - Can their influences be measured?*

**Results based on forecast error variance decomposition

proportion of change (∆) in wheat price explained by changes in:

∆Ptwt ∆STt

wt.mj.ex ∆XRtUS ∆Pt

oil

0.44 0.25 0.15 0.16

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FAO food price index and CRBcommodity and energy indices

(1998-2000=100)

FAO price indicesfor selected commodities

(1998-2000=100)

Source: FAO (Food Outlook, November 2007)

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Biofuel production in the OECD countries relative to world production (million liters)*

*Source: International Institute for Sustainable Development (iisd), Global Subsidy Initiative program (GSI) –September 2007

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Wheat stocks and price Maize stocks and price

Source: FAO

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Coarse Grains exportersCoarse Grains stocks

and ratios


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Maize utilization and exports in the USA

Soybeans/Maize nearby futures ratio


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0

5

10

15

20

25

30

35

40

45

50

1995 1998 2001 2004 2007 2010 2013 2016

0

20

40

60

80

100

120

Total ethanol production

Renewable Fuel Standard

Maize use (right axis)

Expansion of US ethanol productionand corresponding use of maize

•Bio-diesel production to remain limited due to lower profitability caused by high feedstock costs

•Soya-oil use to stay flat under 2.3MT

Ethanol: 7.5 bln gallons or 28.4 bln liters by 2012 (4.6% of gasoline

demand).

Maize: 110 MT or 32% of production

Bill

ion

lite

rs (

Eth

an

ol)

Mill

ion

to

nn

es

(Ma

ize

)

Source: USDA/ERS in OECD-FAO Agricultural Outlook 2007-2016

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0

5

10

15

20

25

30

35

2002 2004 2006 2008 2010 2012 2014 2016

Bill

ions

litr

es (

biof

uels

)

0

5

10

15

20

25

Mill

ion

tonn

es (

crop

use

)

Ethanol BiodieselWheat for ethanol Maize for ethanolOilseeds for biodiesel

Ethanol and bio-diesel use in the EU will increase (based on wheat, rapeseed and imports)

Note: Ethanol and bio-diesel data before 2006 refer to production, from 2006 to 2016 to consumption.

Share of biofuel use in total transport fuel consumption assumed not to exceed 3.3% in energy terms (below the EU 5.75% target by 2010).

By 2020, under Energy Policy for Europe (for EU-27), the EU is committed to increase renewable energy to 20% of primary energy supply, raise energy efficiency by 20% and biofuel in transport fuels in sustainable ways to 10%.

Source: OECD-FAO Agricultural Outlook 2007-2016

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Projected grain utilization in OECDand non-OECD countries


Wheat

Coarse Grains

0 200 400 600 800

Average2004-2006

2016

Average2004-2006

2016

Million Tonnes

Food

Feed

Other

OE

CD

NM

Es

0 100 200 300 400 500

Average2004-2006

2016

Average2004-2006

2016

Million Tonnes

Food

Feed

Other

OE

CD

NM

Es

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Biofuels: preliminary projection results from a recent FAO Study*

The projected sustained high prices of crude oil provide an additional incentive to expand bio-fuel output – beyond the levels stipulated by policy – as long as retail excise tax relief for bio-fuels remains

Higher crop yields and better technology alleviate the pressure for area expansion

Rising biofuel capacity in the US leads to a more competitive ethanol sector; maize prices therefore bid-up to levels that reflect the price of the energy yield from the crop: maize prices will also begin to correlate with energy prices

Source: A. Prakash (2007)

Global biofuel production could expand 5-fold by 2025

Source: Prakash, Adam. 2007. “Grains for food and fuel – at what price?”

*The study (CCP: GR-RI 07/CRS 5) was presented at the joint meeting of the Intergovernmental Group on Grains and Rice in July 2007 in Istanbul, Turkey. It is available at:

http://www.fao.org/unfao/bodies/ccp/gr-ri/2007/index_en.htm

0

50,000

100,000

150,000

200,000

250,000

300,000

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

mill

ion

litre

s

Bio-dieselEthanol

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Outlook for selected world crop prices to 2016 (Index of nominal prices, 1996=1)


0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1996 2001 2006 2011 2016

Coarse Grains

Wheat

Rice

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1996 2001 2006 2011 2016

Vegetable oil

Oilseed

Oilseed meal

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What is food security?

Food security exists when all people, at all times, have physical, social and economic access to sufficient amounts of safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life

Four dimensions of food security:

Availability, Access, Stability and Utilization

VI. A threat to food security? How the Low Income Food Deficit Countries are/could be affected?

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Food Security: Availability

Availability of food could be threatened by bio-energy production:

currently, about 14 million hectares (1 % of the world’s arable land) used for liquid biofuel production

2.5-3.8 % arable land could be used for biofuels by 2030

and 20 % of the world’s arable land by 2050

Source: FAO - CFS 33rd Session-May 2007

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Food Security: Access

Access is influenced directly by food prices and incomes

In the longer run, the competition between food and fuel could be alleviated

The expanding market for biofuel feedstock could contribute significantly to higher incomes for farmers and offer employment opportunities in rural areas

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Food Security: Stability

Stability can be disrupted by price volatility

Expanded use of agricultural commodities for biofuel production could increase the volatility of food prices

Increased risks for the environment

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Food Security: Utilization

Affected by bio-energy, but less directly so than for other aspects

Utilization is closely linked to health status and access to clean water

Bio-energy could make water less readily available for household use

On the other hand, modern bio-energy could make cooking both cheaper and cleaner

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Food security effects of rising pricesacross countries

Rising food and fuel prices will likely compromise food security of countries that are net importers of both food and fuel as their current account deficits increase:

two-thirds of 47 low income food deficit countries (LIFDCs) for which data exist are also energy deficit and

include countries like Bangladesh, Ethiopia, Eritrea, Ghana, Haiti, India, Kenya etc.

Countries that are net exporters of both food and fuel will find themselves in a win-win situation

For countries that are net exporters in one and net importers of the other, the situation depends on the relative size of the food or energy exports and imports

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Forecast import bills of total foodand major foodstuffs


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Forecast changes in food import bills of selected

LIFDCs: 2007 over 2006 (%)

Forecast changes in global food import bills by type:

2007 over 2006 (%)


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Who are the hungry?

World: 860 millionDeveloping countries: 830 million

Countries in Transition25 million

Sub-Saharan Africa206 million

Near East and N. Africa38 million

Latin America and the Car.52 million

Asia and the Pacific524 million

Developed Market Economies9 million

India212

China150

Source: FAO

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World Development Report 2008:

75% of the world’s poor live in rural areas and most work in agriculture

Majority of the world’s poor will still be in rural areas in 2040

Agricultural growth is the main engine for poverty reduction

For the two-thirds poorest, income growth originating in agriculture has more impact than income from non-agricultural sectors

Source: World Bank (2007)

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Which biofuels? Jatropha factor!

Is it economic at current (rising) oil price? Does it have favorable energy and carbon

balances? Will it conflict with food production? Can biofuel production be made pro-poor?

Scale matters! Should countries invest in it now or wait for

next generation technologies?

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Legislation No legislation in place for

Bioenergy National Bioenergy Task

Force

Land Tenure All land owned by state Released to villages, state,

individuals

Infrastructure Scale matters and the

technology is highly capital intensive

Very limited number of roads

Bioenergy proposals always close to existing infrastructure (road or railroad)

Constraints to investment

Who are the poor and most food insecure relative to bioenergy development?

Identify and respect national priorities about food security and self-sufficiency (maize)

Land and legislation could be serious hurdles to bioenergy investment

Resolve potential conflict over access and control of natural resources

Source of income and energy Create incentives for

reinvestment Stimulate domestic economy

and rural development Source of export earnings –

even as a feedstock?

The way forward

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Examples (i) Technical assistance to member countries

Project formulation and technical advisory services Support the design and implementation of bioenergy policy and

programmes Country studies/projects: Argentina, Belarus, Chile, China, Costa Rica,

Croatia, Dominican Republic, Myanmar, Peru and Slovenia Respond to requests for investment, feasibility and technical support

Examples (ii) Cooperation with national, regional and international partners

Secretariat of the Global Bioenergy Partnership (GBEP) at FAO FAO currently Vice-Chair of UN-Energy, with bioenergy as one of the

main programme elements of this interagency mechanism Increased requests and activity on bioenergy from FAO Reg Offices FAO partners with numerous intergovernmental organizations

VII. Bioenergy activities in FAO: work in Progress...

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Global Bioenergy Partnership (GBEP) SCOPE, PARTNERS, PILLARS

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Three-year - USD 3.7 million – 11 January 2007 Guidance on potential effects of bioenergy on

food security in developing countries Started country selection process and

development of analytical framework Capacity-building, policy formulation and

technical guidance National Bioenergy Teams and replicable project

models Legislative Framework Report

Bioenergy and Food Security (BEFS) Project

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VIII. Concluding remarks... high oil prices and the need to reduce greenhouse gas emissions are

among the important drivers in this fast expanding sector. grains/oil plant-based biofuels are becoming a major source of demand

but they are expensive to produce and currently rely on high subsidies and market protection

debates on their net energy balance and on their effectiveness in reducing carbon emissions continue

in the meantime, food prices are affected (increasing) although other factors such as low food inventories have had even more significant impacts

there are good reasons to caution against too much reliance on biofuels as a way forward in getting away from using “risky” fossil fuels

but biofuels can empower rural poor farmers in developing countries, to embark on faster income growth and development

assuming access to technology and land tenure as well as availability of adequate infrastructure, capital, legislations, etc.

a carefully planned, tailored, sustainable, bioenergy strategy is needed

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Relevant International Meetings/Reports

World Development Report 2008: Agriculture for Development (World Bank, October 2007)

Food Outlook (FAO, November 2007) World Energy Outlook – 2007 from International Energy Agency (IEA)-

provides medium to long-term energy market projections and analysis with China and India as its special foci in this year’s report (7 November 2007)

The Intergovernmental Panel on Climate Change (IPCC) - Synthesis of IPCC Fourth Assessment of the state of knowledge on climate change (17 November 2007)

United Nations Framework Convention on Climate Change (UNFCCC) - Bali, 3 - 14 December 2007

Food Outlook (FAO, June 2008) FAO High-Level Conference on World Food Security and the

Challenges of Bioenergy and Climate Change 2-5 June 2008 OECD-FAO Agricultural Outlook 2008-2017 (July 2008)

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Chairman of the Interdepartmental Working Group

[email protected]

SOFA 2008 Bioenergy [email protected]

Global Bioenergy [email protected]

International Bioenergy Platform (IBEP) Website:

Key FAO contacts on bioenergy

http://www.fao.org/sd/en2_en.htm

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A. Abbassian (Analyst and the Secretary of the Intergovernmental group for Grains)[email protected]: (++39) 0657053264

C. Cerquiglini (Database Management and World Outlook Reports) [email protected]

J. Heine (Database Management and Monthly News Report) [email protected]

S. Ripani (Administrative Assistant)[email protected]

FAO Grains Website: http://www.fao.org/es/esc/en/15/53/index.html

Grains Team in FAO Trade and Markets Division

A. Abbassian Secretary of the Intergovernmental Group on Grains

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Transcript of A. Abbassian Secretary of the Intergovernmental Group on Grains