Rising food prices stir opposition to biofuels

By Wayne Rogers, Sonnenschein Nath & Rosenthal LLP

Despite the recent drop in oil prices, attention remains focused on petroleum dependence and the energy crisis. In all countries, the issues of energy security, economic growth and environmental protection are linked. There is a growing trend to counter oil dependence by the increased use of biofuels. Although biofuels were initially hailed as the future replacement for oil, voices for opposition to their use have grown louder. In addition, the issue of food security has entered the mix.

Wayne Rogers Advisor Sonnenschein Nath & Rosenthal
Wayne Rogers
Senior advisor
Sonnenschein Nath & Rosenthal

The rapid increase in fuel prices over the last several years has prompted renewed efforts to find alternatives to oil. Focus has settled on ethanol (which is mostly derived from corn or sugar) and biodiesel (which is derived from various oils: soybeans, sunflower, jatropha, canola, palm, animal fats and other rendered greases). World production of these fuels has exploded. Between 2001 and 2007 world production of ethanol increased from 18.5 billion litres to 60 billion litres, while biodiesel production went from one billion litres to nine billion litres.

The use of biofuels has become one of the most controversial environmental issues today. Europe has an aggressive biofuels programme, spurred by its obligations under the Kyoto accord on greenhouse gas emissions. This has created a tremendous opportunity for the import of biofuels into Europe. The US and some developing countries have raced to exploit this opportunity.

Some environmentalists claim that the production of biofuels does nothing to empower local workers because it is undertaken by large corporations and even some oil companies. Biofuel production is blamed for deforestation, pesticide use, loss of habitat diversity and an increase in greenhouse gas production. Bioversidad en America Latina has reported that, according to some Brazilian sources, 80 million hectares of the Amazon will be transformed into the “biodiesel Saudi Arabia”.

A Massachusetts Institute of Technology study found that if cellulosic fuels are used to provide 10% of the world’s energy, many areas will lose between 20 and 70% of their natural habitats. The Kenyan government, along with the country’s largest national sugar miller, announced plans to plant cane on 20,000 hectares of the Tana River Delta. While supporters say it will create jobs and reduce imports of both energy and sugar, others say it will irrevocably destroy the current ecosystem – converting forests, mangrove and grasslands into sugarcane fields.

In 2008 about 30% of the US corn crop was utilized for ethanol production. According to a study published by the Woodrow Wilson Institute, global food prices increased dramatically between 2005 and 2008: wheat by 143%, corn by 105%, rice by 154%, sugar by 118% and oilseeds by 197%. The US Department of Agriculture stated that continued demand for biofuels coupled with drought in major producing countries was the reason for the increases. Given these high increases, food aid will not go as far as previously and countries in “food deficit” will face mounting pressure.

According to the Catholic News Service, the executive director of the charity Caritas India, Father Mattaman, has said, “Any diversion of land from food or feed production to production of energy biomass will influence food prices.” In a world where a billion people go hungry, producing food to feed cars is anathema to many. Bolivian President Evo Morales has stated that using food crops for fuel harms the world’s poorest people.

Government responses to the biofuel controversy have stirred the pot further. Amid loud protest from the US biodiesel industry, the trade commission of the European Union has called for a five-year extension of anti-dumping and anti-subsidy duties on imports of US biodiesel. This follows claims by European biodiesel producers that they were being harmed by US subsidies for its domestic producers, and that 80% of US-produced biodiesel is being exported to Europe, while EU biodiesel use is running at 40% of capacity. The EU trade committee enacted tariffs between US$380 and US$730 per metric ton. Meanwhile, Malaysia, a major palm oil producer, is now aiming to become the major biodiesel producer for the EU.

This month the Obama administration announced new environmental standards that would account for the environmental impact of biofuel production. The immediate negative reaction from the biofuel industry raises question marks as to what actual standards will be enacted in Congress.

Policy is almost the sole driver of global biofuels production. British prime minister Gordon Brown has stated that if continued food cost increases are found to be linked to biofuels, then the UK’s aggressive biofuels policy would be reviewed.

In India, where food security and energy security continue to be serious issues, it would seem that close attention to the global policy framework and its local impact is warranted. Biofuels may be the answer to the oil dilemma in the US, but close attention must be paid if the nation is not to fall victim to the law of unintended consequences.

Wayne Rogers is a senior adviser in the international law firm of Sonnenschein Nath & Rosenthal, where he specializes in international trade and cross-border transactions. He may be reached at +1-202-408-6478 or wrogers@sonnenschein.com.