Costly Fuel Means Costly Calories

March 12
While we scarcely agree with the all of the thoughts voiced in this article – not all biofuel production is bad – , the point is that the impact of the biofuel craze on world hunger could become devastating.
(The Ottawa Citizen) The poor pay the price
David Warren
A few weeks ago I wrote in this space – facetiously – that an effective response to global warming and/or the atmospheric accumulation of carbon dioxide would be to cut the world’s food consumption by half. This could be achieved if we would all agree to eat only on odd-numbered days.
Among the advantages of having our environmental commissars enforce this scheme, I mentioned the halving of the factory and transport infrastructure that delivers the planet’s food. But beyond this, the food industry’s billion or so poorest customers, who barely get enough to eat now, would be removed from the carbon account entirely. Think of it on the analogy of a corporate buy-out, I suggested:
“At first, there is a net increase in CO2 ‘costs’ as people die and their corpses decay. But later, after they have finished decaying, there are substantial and permanent net savings.”
Perhaps I shouldn’t joke. A scheme to kill off the world’s poor, through starvation, has already been launched on the advice of environmental “experts,” and is showing promising results. The tactics are cleverer than mine, by half.
“Biofuel” is the means. By turning much of the planet’s limited arable land, including especially the lower-cost breadbaskets of the Third World, into grain generators for biofuel, the environmental revolution is creating the conditions for famine on a colossal scale. Thanks to massive First-World subsides for biofuel, and regulations requiring increases in the biofuel component of oil consumption, the tonnage of the world’s crops being fed into biofuel production appears, from various estimates, to be growing about five times faster than the amount being fed into human mouths. The turnover is accelerating.
Even in the economically advanced West, the rise in food prices has become noticeable. My observant reader will find signs in the supermarket, where dairy prices lead an advance that must necessarily spread — for wholesale prices are outstripping retail prices in food across the board. The secondary effect of the monetary inflation this re-ignites is in itself beginning to cause economic havoc.
But we, who spend (in North America) less than 15 per cent of our incomes on food, can nevertheless survive if that proportion doubles or triples.
It is in the poorest countries, where people often spend more than half their income obtaining food, that a doubling or tripling of prices is fatal. And note, the supply of food does not need to halve in order to double prices. It only has to fall, consistently, a little behind demand.
Please don’t take my word for this. The United Nations’ World Food Programme and various other collectivist agencies are already becoming eloquent on the subject. In a statement to the European Parliament last week, the executive director of the WFP explained that their own cost of obtaining food for distribution to the world’s hungry had risen by 40 per cent since last June. They are not predicting a catastrophe. They are experiencing one.
And all this is happening for what? So that we, the rich, can feel some smug environmentalist satisfaction while pumping biofuel into our cars.
The economics of biofuel are distorted by subsidies representing about half of production costs. It is more expensive than refining oil, not only in cash, but in environmental fallout – for there are more production stages to be passed through.
Cheap gas we are not going to get. The world’s oil prices have much more to do with the OPEC cartel than any shortage of reserves or supply. Huge new reservoirs have come to light (most recently off the coast of Brazil), and there were already huge unexploited reserves (such as Alberta’s tar sands). But by choking down supply, a fraction behind growth in demand, OPEC can keep the whip hand for the foreseeable future.
… Noting food riots already in Egypt, Indonesia, Vietnam, the Philippines and Mexico, and food rationing in Pakistan and China, the Indian development economist Deepak Lal writes: “For the Western ‘good and the great,’ their academic acolytes and the pop stars grandstanding to save Africa and to end poverty, this latest Western assault on the world’s poor by their promotion of biofuels to replace food on the limited land in the world, can only evince contempt.”
© The Ottawa Citizen 2008

January 19, 2008

The Food Chain

A New, Global Oil Quandary: Costly Fuel Means Costly Calories
By KEITH BRADSHER
KUANTAN, Malaysia — Rising prices for cooking oil are forcing residents of Asia’s largest slum, in Mumbai, India, to ration every drop. Bakeries in the United States are fretting over higher shortening costs. And here in Malaysia, brand-new factories built to convert vegetable oil into diesel sit idle, their owners unable to afford the raw material.
This is the other oil shock. From India to Indiana, shortages and soaring prices for palm oil, soybean oil and many other types of vegetable oils are the latest, most striking example of a developing global problem: costly food.
The food price index of the Food and Agriculture Organization of the United Nations, based on export prices for 60 internationally traded foodstuffs, climbed 37 percent last year. That was on top of a 14 percent increase in 2006, and the trend has accelerated this winter.
In some poor countries, desperation is taking hold. Just in the last week, protests have erupted in Pakistan over wheat shortages, and in Indonesia over soybean shortages. Egypt has banned rice exports to keep food at home, and China has put price controls on cooking oil, grain, meat, milk and eggs.
According to the F.A.O., food riots have erupted in recent months in Guinea, Mauritania, Mexico, Morocco, Senegal, Uzbekistan and Yemen.
A startling change is unfolding in the world’s food markets. Soaring fuel prices have altered the equation for growing food and transporting it across the globe. Huge demand for biofuels has created tension between using land to produce fuel and using it for food.
A growing middle class in the developing world is demanding more protein, from pork and hamburgers to chicken and ice cream. And all this is happening even as global climate change may be starting to make it harder to grow food in some of the places best equipped to do so, like Australia.
In the last few years, world demand for crops and meat has been rising sharply. It remains an open question how and when the supply will catch up. For the foreseeable future, that probably means higher prices at the grocery store and fatter paychecks for farmers of major crops like corn, wheat and soybeans.
There may be worse inflation to come. Food experts say steep increases in commodity prices have not fully made their way to street stalls in the developing world or supermarkets in the West.
Governments in many poor countries have tried to respond by stepping up food subsidies, imposing or tightening price controls, restricting exports and cutting food import duties.
These temporary measures are already breaking down. Across Southeast Asia, for example, families have been hoarding palm oil. Smugglers have been bidding up prices as they move the oil from more subsidized markets, like Malaysia’s, to less subsidized markets, like Singapore’s.
Cooking oil may seem a trifling expense in the West. But in the developing world, cooking oil is an important source of calories and represents one of the biggest cash outlays for poor families, which grow much of their own food but have to buy oil in which to cook it.
Few crops illustrate the emerging problems in the global food chain as well as palm oil, a vital commodity in much of the world and particularly Asia. From jungles and street markets in Southeast Asia to food companies in the United States and biodiesel factories in Europe, soaring prices for the oil are drawing environmentalists, energy companies, consumers, indigenous peoples and governments into acrimonious disputes.
Palm oil prices have jumped nearly 70 percent in the last year because supply has grown slowly while demand has soared.
Farmers and plantation companies are responding to the higher prices, clearing hundreds of thousands of acres of tropical forest to replant with rows of oil palms. But an oil palm takes eight years to reach full production. A drought last year in Indonesia and flooding in Peninsular Malaysia helped constrain supply. Worldwide palm oil output climbed just 2.7 percent last year, to 42.1 million tons.
At the same time, palm oil demand is growing steeply for a variety of reasons around the globe. They include shifting decisions among farmers about what to plant, rising consumer demand in China and India for edible oils, and Western subsidies for biofuel production.
American farmers have been planting more corn and less soy because demand for corn-based ethanol has pushed up corn prices. American soybean acreage plunged 19 percent last year, producing a drop in soybean oil output and inventories.
Chinese farmers also cut back soybean acreage last year, as urban sprawl covered prime farmland and the Chinese government provided more incentives for grain.
Yet people in China are also consuming more oils. China not only was the world’s biggest palm oil importer last year, holding steady at 5.2 million tons in the first 11 months of the year, but it also doubled its soybean oil imports to 2.9 million tons, forcing buyers elsewhere to switch to palm oil.
Concerns about nutrition used to hurt palm oil sales, but they are now starting to help. The oil was long regarded in the West as unhealthy, but it has become an attractive option to replace the chemically altered fats known as trans fats, which have lately come to be seen as the least healthy of all fats. … American palm oil imports nearly doubled in the first 11 months of last year, rising by 200,000 tons.
Last year, conversion of palm oil into fuel was a fast-growing source of demand, but in recent weeks, rising prices have thrown that business into turmoil.
Growth in Biofuels
Biofuels accounted for almost half the increase in worldwide demand for vegetable oils last year, and represented 7 percent of total consumption of the oils, according to Oil World, a forecasting service in Hamburg, Germany.
The growth of biodiesel, which can be mixed with regular diesel, has been controversial, not only because it competes with food uses of oil but also because of environmental concerns. European conservation groups have been warning that tropical forests are being leveled to make way for oil palm plantations, destroying habitat for orangutans and Sumatran rhinoceroses while also releasing greenhouse gases.
The European Union has moved to restrict imports of palm oil grown in unsustainable ways. The measure has incensed the Malaysian palm oil industry, which had plunged into biofuel production in part to satisfy European demand.
Another controversy involves the treatment of indigenous peoples whose lands have been seized by oil plantations. This has been a particular issue on Borneo … while some indigenous people had benefited from selling palm oil that they grow themselves, many had lost ancestral lands with little to show for it, including lands that used to provide habitats for endangered orangutans.
Demand Outstrips Supply
As the multiple conflicts and economic pressures associated with palm oil play out in the global economy, the bottom line seems to be that the world wants more of the oil than it can get.
Even in Malaysia, the center of the global palm oil industry for half a century, spot shortages have cropped up. Recently, as wholesale prices soared, cooking oil refiners complained of inadequate subsidies and cut back production of household oil, sold at low, regulated prices.
Many of the hardest-hit victims of rising food prices are in the vast slums that surround cities in poorer Asian nations. Full story

Contributing reporting were Andrew Martin in New York, Anand Giridharadas in Kale, India, and Michael Rubenstein in Mumbai.