Potential energy; potential problems

On the positive side, biofuel production could benefit poor people by raising agricultural incomes, creating additional rural jobs in crop harvesting and processing, and utilizing marginal lands and crop residues. Locally produced biofuels could also improve the lives of the poor in terms of energy consumption and enhanced livelihoods. The concentration of demand in developed countries also means that there are possibilities for increased biofuel exports from other regions. The extent to which the potential benefits of biofuels are realized depends on the ability of small-scale farmers to access information and markets, produce at competitive prices and sufficient economies of scale, and afford new biofuel sources. The biofuel-related trade policies and subsidies of developed countries also play a crucial role. However, economies of scale in ethanol production—at least to date—favor large-scale farms, while the existing subsidy regimes and import restrictions undermine the comparative advantage of developing countries.

These challenges and opportunities will generate a variety of winners and losers across countries and particularly among poor constituencies. Recognizing the potential benefits of biofuels, many governments have already established ambitious biofuel expansion plans and blending targets. However, biofuel production remains unviable in many places of the world, threatening natural resources and food security. Substituting a large share of transport fuels with biofuels produced domestically would result in a significant strain on natural resources such as water and land, especially in developed countries. At the same time, expanding biofuel production poses additional food-security threats for food-deficit countries such as those that are net food importers.

Poor people are impacted by biofuels as consumers of food and energy, producers of agricultural commodities and workers. The increase in agricultural demand and the resulting increase in agricultural prices will affect them in different ways. Some poor farmers could gain from this price increase. However, net buyers of food, which represent the majority of poor people, would respond to high food prices by reducing their consumption and changing patterns of demand, leading to caloric and nutritional deficiencies.

Using actual biofuel investment plans, IFPRI’s global scenario analysis estimates that biofuel expansion may result in price increases of 26 per cent for maize and 18 per cent for oilseeds by 2020. The increase in crop prices resulting from expanded biofuel production is also expected to be accompanied by a net decrease in the availability of and access to food, with calorie consumption estimated to decrease across all regions. Food-calorie consumption will decrease the most in Sub-Saharan Africa, where calorie availability is projected to fall by more than 8 per cent if biofuels expand drastically.

The food–fuel competition and the negative impacts on the poor can be mitigated to some extent by technological innovation. Second-generation technologies are expected to convert cellulose and agricultural byproducts into ethanol, but such technologies are still in the making. Limiting current biofuel production, basing it on non-food feedstocks and waste, and relying on marginal lands could be a suitable strategy for managing the trade-offs between food and fuel. However, it makes sense for many countries to wait for the emergence of second and third-generation technologies and “leapfrog” onto them later.

Very few policies currently try to address the potential negative consequences of biofuel production on the poor or try to take advantage of the potential opportunities. Appropriate science, trade and social policies will be fundamental to ensuring that biofuels improve the welfare of the poor and also have positive impacts on energy security and economic development. In terms of science and technology, innovation should focus on accelerating agricultural productivity and developing improved biofuel technologies. Markets and trade policy should give high priority to building an undistorted global system for biofuel markets and trade that has low transaction costs and transparent standards. As food prices increase and become more volatile, the world’s poor and hungry would also need strengthened insurance and social protection. With balanced attention to all these issues, win–win solutions are possible.