The topic of the current research paper is biofuel and its influence on the food prices. The purpose of the paper is to study the notion of biofuel, its dissemination around the world, and the influence of the production of biofuel on food prices in developing countries.
Biofuel is a type of alternative fuel produced from raw materials of the plant or animal origin. These days, the most common types of biofuels are bioethanol, biodiesel, and biogas. Nowadays, many economies affirm that the production of biofuels has a quite negative effect on food prices around the globe. It is associated with the fact that for the obtaining of biofuels, commercial crops are cultivated. For their cultivation, agricultural lands are removed from circulation. This fact ultimately leads to higher prices for food around the world.
Currently, mankind faces three major challenges – reduction of greenhouse gas emissions, search for alternative fuels, and the increase of soil fertility. The second and third issues are closely linked. Thus, these days, biofuel is considered the promising source of energy (Johanson, 2010). Currently, commercial crops are cultivated for the obtaining of biofuels. This fact removes agricultural lands from circulation and ultimately leads to higher prices for food. However, the development of industry leads to the increase of the emissions of greenhouse gasses. Their increased concentration in the atmosphere leads to climate change, the appearance of droughts and floods, and the reduction of the crop. All these phenomena are observed on the background of the growing world population. In such a way, there is a vicious circle –growth of production, increase in energy consumption, increase of the emissions of greenhouse gas, the use of biofuels, removal of lands from circulation for industrial crops, reduction of harvest, and rise of food prices. These days, many developing countries are facing the problems of the rising of food prices because of the usage of biofuels. The aim of the research paper is to study the interconnection between the use of biofuels and food prices.
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Biofuel is the fuel from biological materials. Alan Scragg (2009) gives the following definition “Biofuels are energy sources derived from biological materials, which distinguishes them from other non-fossil fuel energy sources such as wind and wave energy” (p. 1). Generally, biofuel is obtained from the processing of the stalks of sugar cane or of seeds of rape, corn, and soybean. In accordance with the energy performance, such fuel is similar to conventional forms of fuel. Biofuels have many advantages. The researchers Mario Giampietro, and Kozo Giampietro (2009) state that “The large-scale production of agro-biofuels can significantly improve energy independence and security, through the reduction of dependency on imported petroleum.” Biofuel is an alternative source of energy for vehicles with internal combustion engines. According to recent studies, the use of bio-ethanol reduces carbon dioxide emissions by 30-80% in comparison with gasoline engines (Scragg, 2009). The best types of biofuels, for example, ethanol from sugar cane in Brazil, may produce 10 times more energy than the energy that was involved in their production. During their use, only a quarter of the amount of greenhouse gasses that would be released in the use of its fossil equivalent is emitted. The worst examples of biofuels require more energy consumption in their production. Moreover, they emit more greenhouse gasses than the better types. Thus, such biofuels are harmful to the environment. Thus, for the obtaining of biodiesel from palm oil in Indonesia, forests are burned to clear land for agriculture.
Biofuels and Transportation
Transport has been and remains the main area in the world where large-scale efforts are made to introduce biofuels. In this industry, there are two kinds of primary biofuels – ethanol and biodiesel based on vegetable oil. Many developed countries already use biofuel in the transport sector. The development of the biofuel market will significantly reduce the use of gasoline. In turn, this will bring many benefits. However, in most countries, the production cost of bio-ethanol and biodiesel is higher than the cost of petroleum products, including imported fuels (Scragg, 2009). Moreover, the payback of the biofuel business is inferior to the profitability of refining of oil. These days, one ton of diesel exclude taxes costs $ 550 on the exchanges (Scragg, 2009). It is 33 cents per liter. One liter of biodiesel costs about 1 euro. The cost of bio-ethanol is in the range of $ 0.5 – $ 1 per liter depending on the cost of its production (Scragg, 2009). According to the experts, the development of biofuel market along with the production and consumption is not economically feasible without a proper level of the state support that is implemented in the form of directive or incentives measures (Giampietro & Mayumi, 2009).
For a long time, there have been lively disputes on biofuels and food prices. There are various opinions associated with the variety of effects and possibilities of processing of raw materials, which can positively or negatively affect the price system. These days, critics who study the development of the biofuel industry claim that growing demand for biofuels forces agricultural producers to reduce the area under food crops and redistribute them in favor of fuel (Koizumi, 2014). For example, in the production of ethanol from corn, the bard is produced – waste from the production of ethyl alcohol. It is used for the production of mixed-fodder for livestock and poultry. In the production of biodiesel from soy or rapeseed, expeller is obtained used for the production of mixed-fodder for livestock. In such a way, the production of biofuels creates another stage of processing of agricultural raw materials. Ringler, Biswas, and Cline (2010) explain that “Expanded biofuel production is another important contributing factor to the rise in food prices” (p. 67). According to the calculations of economists, the number of hungry people around the world will increase to 1.2 billion people by 2025 as a result of the biofuel boom (Koizumi, 2014).
When agricultural crops are used for biofuel production, the first direct consequence of this is the reduction of the inventory amount of agricultural products for food purposes. This competition leads to higher prices since the same available supplies are of interest to consumers and the different types of demand. Tatsuji Koizumi (2014) affirms that “70-75% of the increase of food commodities prices was due to world biofuels.”
In Indonesia and Malaysia, large areas of rainforests have been cut down to create palm plantations (Ringler, Biswas, & Cline, 2010). The cause for this was the race for the production of biodiesel. It is the fuel that is based on vegetable or animal fats. It is used as an alternative to diesel fuel. As the fuel, rapeseed oil can be used in a pure form. The low production costs and low energy consumption are the factors that necessary for the production of alternative fuels from half-technological oilseeds.
On the one hand, the increase of the areas under crop for the technical corn varieties can lead to the situation that fertile land suitable for food production would be occupied. However, according to many experts, the cessation of the production of biofuels will lead to higher prices for oil and gasoline by 15% (Ringler, Biswas, & Cline, 2010). Moreover, consumers, especially from poor developing countries, will be under a double blow if the prices for both food products and oil increase. According to World Bank estimates, in 2009, 2.7 billion people worldwide lived on less than two dollars per day (Ringler, Biswas, & Cline, 2010). In such a way, even a slight increase in the cost of the basic cereal crops will be a disaster for poor countries.
Brazil and Biofuels
For the production of biofuels, Brazil uses sugar cane. These days, sugar is not a staple food to the same degree as corn or wheat. The average volume of world consumption of sugar is 24 kilograms per capita. Many countries with the developing market economy, including India and China, in which the volume of its consumption rapidly increases, have not reached this level yet. With a sharp increase in world prices for sugar during 2009-2011, the volume of sugar exported by Brazil increased markedly (Singh, 2013). Data show that in view of the transition of the big countries with the emerging market economies to the adopted urban type of food, the demand for sugar constantly increases (Singh, 2013). As a result, sugar may become a sensitive product for the food systems in the developing countries. However, in terms of food security, the world sugar market occupies not a central place if compared to the corn market.
The world sugar market has a single structure. The share of Brazil accounts for about 50% of this market (Singh, 2013). It depends on a small number of producing countries. India is also one of the main manufacturers. As a rule, these countries determine the trend of world prices for sugar as these prices depend on the crop yield, the amount of which fluctuates constantly. About half of sugar cane grown in Brazil is used to produce ethanol. The other half is used for the production of sugar. The resulting increase in the volume of sugar cane, in general, involves a proportional increase in production volumes of both sugar and ethanol.
To evaluate whether the expansion of production of sugarcane could affect volume of supply and, consequently, the price of sugar and other food products, Elobeid et al., using a model developed by the Research Institute of Food and Agricultural Policy, have studied two scenarios, according to which, the volume of world consumption of ethanol was increased by 25% relative to the baseline values in the ordinary course (Singh, 2013). Under the first scenario, the authors have allowed Brazilian producers to expand cultivated areas (Singh, 2013). According to the second scenario, the possibility of expanding the area in Brazil was significantly reduced. In both cases, the price of sugar rose by almost 4.3% (Singh, 2013). This moderate impact and the lack of a significant difference between the scenarios might indicate the potential of Brazilian producers to expand production on the existing cropland, increase of the area with the condition of simultaneous cultivation of two cultures and release of several pastures for seeding (Singh, 2013).
The expansion of sugar cane production in Brazil does not have a significant impact on the supply and, consequently, on the price of other foods. In other countries, producers of ethanol widely use either sugar beets or molasses. Molasses is a by-product of sugar production. Therefore, its use does not affect the sugar market. Furthermore, it increases the production margins.
Econometric studies have shown that the prices of Brazilian ethanol are correlated with the prices of oil and sugar. The redistribution of a large amount of sugar to ethanol production leads in ceteris paribus to the increase in sugar prices relative to the level, at which prices would have remained with the exclusion of ethanol production. However, according to these studies, with a total increase in production of sugar cane, the total impact was moderate and on the Brazilian market, world prices for sugar and oil have a greater impact on the price of ethanol rather than vice versa (Singh, 2013).
Alternative Ways of the Production of Biofuels
To stop the growth of food prices, it is necessary to look for different ways of the production biofuels. These days, there are several successful technologies for the production of biofuels. They include the production of fuels from agricultural waste products, the addition of the biological components in the conventional fuels, and chemical synthesis of fuel. In case of receiving biofuels from agricultural waste products, vegetable residues and dung serve as a raw material. Wastes are dried and heated to a temperature of 400-500 ° C (Borras, McMichael, & Scoones, 2013). From gas fractions precipitated during this processing, high-quality diesel fuel is obtained. Moreover, it is devoid of harmful impurities. This kind of diesel fuel is neutral with respect to CO2. During the combustion of this fuel, such amount of carbon dioxide is released equal to the amount absorbed during the growth of plants. The purity of this biological diesel fuel meets the most stringent standards. According to the experts, even agriculture of European countries only can provide up to 80% of modern requirements for diesel fuel (Borras, McMichael, & Scoones, 2013).
To improve the environmental performance of fuels, the biological components such as rapeseed oil are added to them. If to add only 30% of rapeseed oil in diesel fuel, its environmental performance will be significantly improved and power characteristics will not be substantially changed (Borras, McMichael, & Scoones, 2013). It is also important that this biofuel can be used in conventional internal combustion engines. Chemical synthesis of gasoline and diesel fuels is extremely energy intensive. Typically, wood serves as a raw material for this process of the fuel production. Changing the parameters of the technological process, different fuels from aviation gasoline to diesel fuels can be obtained from wood. Synthetic fuel has a good environmental performance. When it burns, there are no harmful substances. It is also neutral with respect to CO2. However, due to high energy costs and the complexity of the technological processes, synthetic fuels are extremely expensive (Borras, McMichael, & Scoones, 2013).
In the countries of the European Union, due to the state support, the production of diesel fuel with biological additives has increased by more than 5 times. These days, it has reached a volume of 10 million tons (Buxton, 2014). Worldwide, biofuel production has increased by more than 2.5 times over this period (Buxton, 2014). Materials derived from vegetable oils obtained from sunflowers, rapeseed, soybeans, and other oilseeds are used as biological additives. Oils for biofuel are obtained by pressing and extracting with the following purification. The heat of combustion of pure dietary supplements to biofuels approaches the heat of combustion of diesel fuel.
It is noteworthy that in the United States and Brazil, soy is used as a raw material for biofuel. However, in Europe, more than 75% of biodiesel is produced from rapeseed (Buxton, 2014). By 2020, in the countries of the European Union, the share of bio-additives to diesel fuel will be increased to 20%. By that time, the United States and China will bring the percentage of bio-additives to 40% (Buxton, 2014).
Currently, the major part of bio-ethanol is made from corn (the USA) and sugar cane (Brazil). Various crops rich in starch or sugar may also be the raw material for the production of bio-ethanol – cassava, potato, sugar beet, sweet potato, sorghum, barley, and many others. It can be produced in large amounts from cellulose. Different wastes of agriculture and forestry can also be the raw material for the production of biofuels – wheat straw, rice straw, sugarcane bagasse, and sawdust. In such a way, these days, there are many sown areas that occupy technical grades of agricultural plants. This fact leads to the increase in food prices. From these plants, biofuels – ethanol is obtained. It is necessary to find new methods of its production.
Many economists worldwide warn of the worsening of problems associated with the increase in the number of hungry people in the world. In this regard, the reason for this is the growing demand for biofuels. The growing production of biofuels requires an increasing amount of agricultural raw materials. This, in turn, will warm up demand and prices in the world. Rising prices for basic agricultural products are a particular problem for the developing countries. In such a way, it is necessary to look for alternative ways of the production biofuels in future. They are chemical synthesis of fuel, the addition of the biological components in the conventional fuels, and the production of fuels from agricultural waste products.
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