Thursday, 28 June 2007

Food vs. Fuel war brewing

Many people and institutions have warned about the coming fight between biofuels and food for arable land.

Even the mainstream media in Europe and USA have been hammering the message in lately: first generation biofuels from edible crops is brain dead idea. Further, even non-food biofuel crops may compete with food crops for the same acreage.

When biofuels compete with food production, what happens?

At this point the astute reader has understood the underlying reason why the price of food and energy has been cleaned from the most common inflation index, even though those represent a major inelastic part of everyday consumption.

When you combine this with the fact that per capita global food production has already hit a peak and is at is currently lowest in 50 years, there is a possibility of a big political storm brewing.

Again, the poorest nations will take a hit first: when oil is too expensive and critical for infrastructure (incl. electricity production) and price of bio-fuel crops go up, then edible crops are abandoned for more lucrative crops.

Fortunately, some developing nations have already understood the precarious balance between food and fuels. China's ban on use of corn for biofuel could be a sign of things to come elsewhere.

However, the ever inventive market is now showing signs of turning to other sources, like fruit. This does not solve the problem, merely shifts it around.

Food into fuel drives up the world prices of most major food crops, making it increasingly more difficult for poor nations to solve the edible crop shortage through costlier imports.

So, what happens? People starve. Nothing new there.

And in the end, we accept it, because it calms the markets and lets us think we can compensate for the plateauing crude oil production with biofuels, which in turn enables us to keep running our economies, planes and cars.

So, we keep on producing unsustainable biofuel types, even if it reduces edible crops on the market and drives up the food prices.

However, if the situation gets dire enough, through an added shock to the system, like a massive serious of world wide droughts for example, then even biofuels could become too expensive for us, while food prices remain high.

What drives this apparently risky development?

Sane or not, the advance of biofuels is driven by various forces:
  1. Our relentless and growing consumption of oil
  2. Urgent need for greenhouse gas emission reduction
  3. Strong lobbying for subsidies and associated (American) political alignment
  4. Increased insecurity about energy (read:oil) security: not enough production is local
  5. Growing nervousness about supply of oil refinery products
  6. Still expanding green tech & biofuel business boom
So, it looks like biofuels we will get and food less so.

Will this tension between fuel and food production result in a crisis or local political instability as predicted?

Let's look at what the magic 8-ball says:

Ah well, till the next time