Food fuel and food: when competition starts to bite
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Food fuel and food: when competition starts to bite Max Merbis Centre for World Food Studies (SOW-VU)
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Food fuel and food: when competition starts to bite. Max Merbis Centre for World Food Studies (SOW-VU). Hunger amidst plenty. One planet with two worlds, where scarcity manifests itself as Increased demand for feed and biofuels Hunger and undernutrition, destitution - PowerPoint PPT Presentation
Transcript of Food fuel and food: when competition starts to bite
Food fuel and food:when competition starts to bite
Max Merbis
Centre for World Food Studies (SOW-VU)
Hunger amidst plenty
• One planet with two worlds, where scarcity manifests itself as – Increased demand for feed and biofuels– Hunger and undernutrition, destitution
• Stylized review of world food situation• The food crisis and its causes
– Role of emerging countries– Biofuel policies
• Conclusion: where are we now?
Global population, 1950-2050, billions
0.0
2.0
4.0
6.0
8.0
10.0
12.0
1950 1970 1990 2010 2030 2050
Source: United Nations Population Division
Low variant
Medium variant
High variant
Population by region, 1950-2050 (medium variant)
0
500
1000
1500
2000
2500
3000
Africa Eastern Asia(includesChina)
South-Central Asia
(includesIndia)
South-Eastern Asia
Europe Latin Americaand
Caribbean
NorthernAmerica
Source: United Nations Population Division
mill
ions
Years:195019752000202520501975
2000
2025
2050
Cereals production
0
500
1,000
1,500
2,000
2,500
1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005
[mln
to
ns] World
Asia
N. America
Europe
Production main crops per caput
0
50
100
150
200
250
300
350
400
1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005
year
kg/h
d
Cereals
Fruits
Oilseeds
Roots and tubers
Vegetables
Price indices for wheat, US
0
50
100
150
200
250
300
1980M1 1984M1 1988M1 1992M1 1996M1 2000M1 2004M1 2008M1
Source: BLS and IMF
1982
-84=
100
Real (CPI US)
Nominal
“Terms of trade”
• Wheat price nominally stable, surging from mid-2007• The longer term: in real terms declining wheat price• More general: index of agricultural commodities declines
of the past 100 years, by about one percent per year• Predicament of the farmer: declining terms-of-trade• Adjustment: higher productivity / larger farms• Occupational outmigration
– Agricultural labor force in 1960s: 10% of labor force, now <3%.
World market and futures prices
World market and futures prices, Cereals [US$/ton]
0
50
100
150
200
250
300
350
400
450
500
2007M1 2007M5 2007M9 2008M1 2008M5 2008M9 2009M1
Source: IMF and CBOT, Sept. 2008. Futures prices for Dec '08 and March '09 contracts,
as setttled on 23-09-2008
Maize, spot market
Wheat, spot market
Maize, futures
Wheat, futures
World market and futures prices
World market and futures prices, Soybeans complex [US$/ton]
0
200
400
600
800
1000
1200
1400
1600
2007M1 2007M5 2007M9 2008M1 2008M5 2008M9 2009M1
Source: IMF and CBOT, Sept. 2008. Futures prices for Nov, Dec '08 and March '09 contracts,
as setttled on 23-09-2008
Soybeans, meal
Soybeans, oil
Soybeans
Soybeans, meal futures
Soybeans, oil futures
Soybeans, futures
Causes
• Rising income growth and meat consumption in emerging economies
• Biofuel policies in EU and US• Other (short term) effects
– Production shortfalls (Australia)– Weakness of dollar and rise of crude oil price– Volatility on futures markets caused by speculators– Trade constraints imposed by exporting countries
The kinked meat demand function
b2=8.07(62.64)
Per-capita Consumption
77 kg
17 kg
9,700 US-$2,200 US-$
b3=0.98(29.7)
b1=3.25(10.85) Dummies:
China 7.32 (5.31)India -9.56 (-7.34)USA 23.81 (6.04)Japan -50.37 (-13.29)
Meat demand in emerging contries
• Threshold effects, at low and high income– Shift from low to high propensity to consume meat
• Corroborating effects– Urbanization: shift to ready-to-eat diets – Change in feeding technology: from roaming around the farm to
industrial type feedlots based on compound feed
• Strong driver for pressure on feed (cereals) markets– Mitigated by the high income threshold effect– Mitigated by technological progress in feed conversion
Biofuels policies in US and EU
• US– EISA legislation (2007)– 36 billion gallons of biofuels in 2022– Lavish subsidies on corn, soybeans, and biomass– Main arguments: import dependence of oil and improving terms-
of-trade
• EU– Biofuel promotion through exemption of excise tax (Member
states)– EU-regulation (2003) on biofuel mixing targets: 5.75% in 2010,
and plans for up to 10% in 2020– Main argument: reduction of GHGs and greening the energy
sector
• Can agriculture adjust so fast?
Competition of food and fuel
• Biodiesel and petrol diesel: near substitutes– Biodiesel from rapeseed oil– Petrol diesel from refining crude oil– Price mechanism drives substitution– Petrol diesel prices acts as floor for biodiesel and thus as a floor
for agricultural prices
• EU policies on mandatory mixing switch off this mechanism– Large implicit subsidization of biofuel producers– Annual subsidy that is increasing when mixing targets go up
• Direct measures to combat GHGs are to be preferred– Introduction of carbon tax– Flat in C (thus differentiated over fuel types)– Exemption for biofuels (emissions have been sequestered)
Conclusion and prospects
• The food crisis is primarily a demand crisis– Improvement of safety nets in developing countries– Lack of international policy coordination – Raising agricultural production while protecting the environment
• Credit crunch– Toxic assets– Colateralization
• Surge in commodity prices noraml signals a recession• Back to normal (?), focus on the real economy, which is
a raw material constrained economy• How to benefit from high commodity prices?
– Resource assessment and appropriate policies
Thank you.
Urban-rural population trends
Energy demand
Primary energy demand, 2005
0
50
100
150
200
250
300
350
400
450
500
OECD India+China Other dev'g Transition World
Source: IEA, Paris
Ex
aJ
ou
els
[E
J]
hydro, renewables
nuclear energy
gas, oil, coal
Biofuels in US
Biofuels in US
0
5
10
15
20
25
30
35
40
45
50
2005 2007 2010 2022
EISA targets for 2010, 2020
[mln
ha]
Soybeans land for biodiesel
Corn land for ethanol
Biofuels in EU
Biofuels in EU
0
5
10
15
20
25
30
35
2005 2007 2010 2020
Mixing targets for 2010, 2020
[mln
ha] Rapeseed land for biodiesel
Cereal land for ethanol
Biofuels in US
Land use for biofuels in the US, current and targeted EISA targets
2005 2007 2010 2022
Corn area (mln ha) 30.4 34.8
Corn land for ethanol (mln ha) 4.4 8.5 11.3 14.2
(% of corn land) 14.4 24.3 32.5 40.7
Soybeans area (mln ha) 28.9 25.4
Soybeans area for biodiesel (mln ha) 0.6 3.6 4.1 31.7
(% of soyland) 2.1 14.3 16.2 124.8
Note: For 2010 and 2020 %-areas are relative to the 2007 surface, hence a figure exceeding 100% for soybeans in 2022.
Biomass potentials and use of nutrients
Land Use
Yield
Energy Output
Nutrient application
Total nutrients
[mln ha] [GJ/ha] [EJ] kg/ha Mln tons
Total, World 13,013 198 194
Arable land and permanent crops 1,562 10 16 12 18
Permanent meadows and pastures 3,406 35 119 40 136
Forest area 3,952 16 63 10 40
Other land 4,093 0 0 0 0
Note: current fertilizer application is 160 mln tons of nutrients
0
20
40
60
80
100
120
140
160
180
0 20 40 60 80 100 120
Raw material food price (ct / ltr)
En
erg
y p
rice
(ct
/ lt
r)
Observed price ( I = 2003; II = 2007; III= 2008)
Parity price ( y = 35 + 1.3 x )
I
II
III
Biodiesel parity price and price observations
Land area: 13 mln ha
Arable land
Pastures
Forests
Other land
Biomass potentials and use of nutrients
Energy: 198 EJ
Nutrients: 195 mln tons
Note: based on Fischer and SchrattenholzerCurrent nutrient application: 160 mln tons
