In the next decade Greenhouse Gas worries and demand for transport bio-fuels will eliminate Obscene Global Gluts of Subsidised Food.

Sometimes two wrongs make a right. Global warming will cancel out obscene food gluts created by subsidised agriculture.

Continually falling real food prices have been the norm for many decades, but recently commodity price trends levelled off. They may even increase if energy costs continue to rise.

And a new factor has come on the global scene to provide income for farmers, and influence commodity markets. That new force is direct competition for agricultural resources ( land, fertiliser, water) between food market demands and fuel market demands. This competition already exists in the Brazilian sugar-ethanol markets, and is even now influencing Canadian exports of vegetable oil to the EU that are used as transport fuel (bio-diesel).

European concerns about Greenhouse gas emissions are helping drive their farm sector away from subsidised food and the gluts it creates on global markets. Biofuels are being seen as an ideal, environmentally responsible way to prop up rural incomes, and are in effect, an alternative to direct farm subsidies.

IPRI touch on this in their recent review THE WORLD FOOD SITUATION (Dec 2005) mentioned in an earlier post.

Food Prices and Energy:

We have become used to a secular long-term decline in world staple food prices over past decades. However, this trend, which has been fostered by technological progress, especially in plant breeding, is not visible in the past decade. Long-term outlooks by IFPRI’s IMPACT model have been suggesting such leveling off of the secular trend in coming years.
A major new factor with short- and long-term implications for agriculture and thus poverty and hunger is the price of energy. As energy prices rise, the costs of farmers’ inputs, processing, and transportation go up. This could result in an increase in food price, with varying effects for different people. So far we do not see such effects, as food prices do not yet correlate significantly with energy prices .
However, the situation may become fundamentally different because it is becoming increasingly efficient to produce energy from agricultural products. At current oil prices it is cost-effective to produce bio-fuel. Competition for land and other resources will rise between production for food versus for fuel (Henniges 2005). Many developing countries are currently looking at that option and considering or already implementing expanded bio-fuel production and processing capacities. New challenges for accelerated innovation in agriculture and in the energy sector (including for saving energy) arise from that.

The European Parliament provides useful data on this interaction between food and fuel markets for agricultural products in AGRICULTURE AND RURAL DEVELOPMENT, THE PROMOTION OF NON-FOOD CROPS STUDY .

This NON-FOOD CROPS report cites Drs Oliver Henniges, J. Zeddies and C. Berg as important sources for some of it's conclusions, and some of their recent commentaries are given here ,here , here, and here


From these reports and comments it is clear that very substantial development of ethanol fuel and bio-diesel is occurring in Europe, and wheat, oilseed rape and beet are the main crops involved so far. Restructuring of EU agricultural supports will lead to about 5% of arable land being diverted (set aside) to non-food, fuel crops in the medium term future (5-10 years). These changes should, hopefully, see substantial removal of EU food surpluses from world markets.

The most telling parts of this report are price data in Figs 6 and 7, given at the start to this post. With current oil near US$50, rapeseed oil can enter diesel markets without much subsidy or favourable tax treatment, if any is necessary.

The EU non-food crop study has much of economic and environmental to say about biofuels in Europe:

European Parliament, Directorate General Internal Policies of the Union, Policy Department Structural and Cohesion Policies AGRICULTURE AND RURAL DEVELOPMENT, THE PROMOTION OF NON-FOOD CROPS STUDY IP/B/AGRI/ST/2005-02 29/07/2005 PE 363.789 EN

2.1.3. Implications [of Kyoto treaty issues] for non-food crops
The June 2003 agreement on CAP reform has significant implications for external trade. Most important was the decision to decouple subsidy payments from production. In doing so, payments became Green Box compatible, being "domestic support measures … which … have no, or at most, minimal trade-distorting effects or effects on production" and thus no longer liable to reduction commitments. By breaking the link between subsidy and production, decoupling also reduces incentives for overproduction and the creation of surpluses, which Europe has traditionally exported onto world markets with the aid of export subsidies. These
subsidies can now be expected to decline.
The net effect of this and other measures to deliver WTO obligations will tend to be to make conventional food crops less attractive to many farmers. Some may sell up their holdings to others who are prepared to compete on global food commodity markets. Others will seek alternative uses for their land. Non-food crops may provide the answer for some. Certain nonfood crops are viable without subsidy - for example high value, low volume crops for pharmaceutical use where quality of supply and traceability are vital. Others may be supported by green box payments because of their environmental benefits - for example, energy crops intended to contribute to reductions in carbon dioxide emissions.
To achieve their targets, Parties must put in place “domestic policies and measures”. They may offset their emissions by increasing the amount of greenhouse gases removed from the atmosphere by carbon “sinks”. Changes in land use may increase or decrease this offset.

2.2.1. Implications for non-food crops
The ability of non-food crops to substitute for petrochemical feedstocks for energy, fuel and materials means that they can play a major part in helping the EU meet its target reduction in greenhouse gas emissions. Although energy and fuels are potentially the large-scale uses of nonfood crops and can globally contribute the most to reducing carbon emissions, the contribution of materials should not be overlooked as the production of renewable materials may produce greater savings per hectare than energy/fuel applications.

3.1. The impact of CAP reform on non-food crops
Under the Reform of the Common Agricultural Policy, which was announced in 2003, farmers in most Member States will maintain direct income payments based on those received in the reference years 2000-02. In addition, Germany for example has adopted a ‘regional decoupling strategy’ whereby payments are based on geographical location, and thus general land productivity and climatic conditions. This new structure will maintain income stability, but the principle of separating subsidies and production has been established. This “de-coupling” has been predicted to lead to a strong development in non-food agricultural production, particularly renewable energy sources [82. Petersen, J., and Hoogeveen, Y., Agriculture and the Environment in the EU Accession, Countries, European Environment Agency, Belgium, 2004.].

3.1.1. The use of set-aside for non-food crops
Under the new scheme, known as ‘Single Farm Payment’, which came into operation on 01st
January 2005, the set-aside area in the EU-25 stands at 10% of usable agricultural land, or some 6.6 million ha. In addition a 30% increase in voluntary set-aside has been forecast by 2011
relative to 2002 [37], equating to some 3.4 million hectares (see Figure 1). Set-aside can now be used for production of any crop not intended for animal or human consumption. Farmers are likely to take out of production unfavourable areas; however such land parcels may suit production of more hardy perennial crops such as those for energy generation (e.g. willow, Miscanthus) and a significant increase in production could therefore be expected [56].

CAP reform in itself, under the new single farm payment model, has been predicted to lead to a
small increase in the absolute amount of oilseed cultivated between 2004 and 2011; mainly in the new member states [39, 9] (see Figure 2). The area of cereals has also been predicted to remain stable, but the proportion dedicated to non-food uses is likely to grow (see Figure 3).
However, countries adopting the Regional decoupling model are likely to see different effects.
Using Germany as an example cereal production is predicted to decrease by 8-10% caused by the increase in set-aside and land abandonment. Germany also predict a 6-8% decrease in area of food oilseeds yet a 27% increase in non-food oilseed production, mainly due to the additional
support available under the Energy Crops Scheme [119].

3.1.2. Energy and biofuel crops
The area of land within the EU-25 eligible for support for cultivation of non-food crops either
under set-aside or under the Energy Crops Scheme will total 8 million hectares in 2005, rising to 9.4 million hectares in 2011. This includes the maximum area allowance in the Energy Crops Scheme and the 30% increase in voluntary set-aside mentioned above. In order to meet the 2010 EU targets for biomass power and bio-fuels, it has been estimated that 6.5 million hectares will need to be devoted to solid fuel energy crops and at least a further 6.6 million hectares will be needed for biofuels. The total - over 13 million hectares - is 3.5 million hectares more than the area that is predicted to receive support.

4.1.2. The EU is world-leader in production of oilseed rape for industrial uses
Oilseed rape is an important feedstock for bio-diesel as well as a range of other industrial applications. The EU is the world’s largest producer of rapeseed and production costs compare favourably with Canada [83]. Yields of soy in the EU are comparable to those in the USA but OSR produces a higher yield of oil per hectare than soya. This, combined with the technical advantages of OSR for biodiesel manufacture, mean that OSR is likely to remain the principal EU oilseed feedstock for industrial uses. The production costs of tropical oilseeds such as Jatropha, which are now being cultivated for the biodiesel market in developing countries eg. India and Africa are expected to be significantly lower than EU oilseed production. Although some of this will be imported into the EU, domestic markets within the developing world may be expected to consume a large proportion of this product.

4.3.2. Renewable feedstocks are becoming price-competitive with crude oil
Although the price of vegetable oils such as soy, rapeseed and sunflower is determined by the food market, which they mainly serve, these renewable oils also compete directly with mineral oil as a feedstock for many industrial purposes. Global costs of oilseed production are difficult to obtain, but Figure 6 (above) illustrates prices for a range of vegetable oils published in January 2005 in the Chemical Market Reporter together with a reference price of crude oil at $50 per barrel.
This shows that, with the current high price of oil, renewable sources of oil are becoming pricecompetitive.
The company DSM estimated that ethylene could be produced cheaper from biobased feedstocks than petrochemicals using current technology with oil at $30 per barrel [89. Industrial or White Biotechnology: A driver for sustainable growth in Europe, 2004].

See also later Post on biofuels