NextBillion.net - Development Through Enterprise - Biofuels and the BOP - Comments

Rob, Andre, and biofuels

Avery — Thu, 19 Jul 2007 11:40:44 -0400

Thanks guys for an interesting discussion, it stimulates a couple of thoughts: 1) I don't know the CAP that well, but very U.S. farm subsidies are direct (i.e. tied to market prices and volumes for crops grown). Instead, most subsidies are indirect, meaning they are dished out regardless of high prices. Indirect subsidies are the source of billion of dollars in commodities market distortions and they are not up for negotiation through the AoA. 2) High food prices may not be such a bad thing in the developed world because they may revitalize investment in ag. r&d and perhaps make it possible for growers to pay living wages. At the BOP, however, these prices are crippling for households. Responses?

Corn V. Millet

Glen — Fri, 13 Jul 2007 10:42:49 -0400

I know in the south of West Africa, corn has replaced millet in some diets(and earlier in the history of the West African diet, a grain called fonio), even though millet is actually better for people. It has higher nutritional value and is less likely to cause starch-based diabetes, which is surprisingly common over a certain age. When corn prices go up, millet often is the replacement, which means that people are actually eating healthier, and are promoting a crop native to the area. I wonder if this might be an unexpected positive side effect of the impact of biofuels to the world price of corn.

Andre and biofuels

Rob Katz — Wed, 11 Jul 2007 17:28:20 -0400

Andre, I hadn't thought about it like that before. There's going to be a time lag before the farms catch up and we get to equilibrium though -- what are the costs involved in that time lag? (Rhetorical question). Anyone else have thoughts on this?

not all bad?

Andre — Wed, 11 Jul 2007 04:33:20 -0400

I am no expert in this, but as an European I hear constant moaning about CAP and butter mountains. I don't know how true this still holds, but certainly a large part of the ongoing Doha round is the failure of the US and Europe to agree on the phasing out of farm subsidies. If they are not removed developing-country farms will remain uncompetitive. Seen in this light, I wonder whether the new found lust for green fuels is all bad. If the extra demand really outstrips supply then the subsidies will no longer be needed (which will remove the pressure that the phase-out entails) and farms with lower production costs (lower wages) will finally be able to benefit from their advantage. Naturally there is more to it, both with positive and negative implications. A big question mark is whether the market will exaggerate the way it is currently doing with commodities. But hopefully short term price hikes will give way to more sustainable agriculture output and employment. Any thoughts?

Biofuels and the BOP

Rob Katz — Tue, 10 Jul 2007 14:36:02 -0400

Chris Monasterski over at the PSDBlog connects biofuels, world hunger, and The Next 4 Billion report. Wish I had thought of it! (Seriously, bravo Chris.) Check it out - biofuels are driving food costs up, which puts pressure on BOP budgets. The poor are among those most at risk from the effects of massive climate change, but if we in the West/North have to divert food stocks away from BOP populations in order to avoid climate change, are the effects on BOP communities any better (or even worse?) To be seen. In the meantime, here's what Chris has to say:

From Foreign Affairs:

The enormous volume of corn required by the ethanol industry is sending shock waves through the food system. […] corn futures rose to over $4.38 a bushel, the highest in ten years.

Biofuels have tied oil and food prices together in ways that could [have] potentially devastating implications for both global poverty and food security.

[…] resorting to biofuels is likely to exacerbate world hunger. Several studies […] suggest that caloric consumption among the world’s poor declines by about half of one percent whenever the average prices of all major food staples increase by one percent.

When one staple becomes more expensive, people try to replace it with a cheaper one, but if the prices of nearly all staples go up, they are left with no alternative.

Food expenditures already consume over 50 percent of budgets in households at the bottom of the pyramid. In Nigeria, food accounts for 52 percent and in rural Pakistan 55 percent of BOP spending. A final statistic from the article:

Filling the 25-gallon tank of an SUV with pure ethanol requires over 450 pounds of corn – which contains enough calories to feed one person for a year.