Food vs. Feed vs. Fuel

Let free market action determine optimum resource allocation mix.

Published on: Mar 6, 2007

Editor's Note: This is the first of a four-part series on renewable fuel issues written by Economics Editor John Otte from his trip to the USDA Outlook Conference recently.

The United Nations estimates that by mid-century, food production must double from current levels to feed the world’s people.

"As we devote a greater proportion of crops to fuel, pressures on the supply and demand equations will cause the price of food to rise," says Gregory Page, Cargill's president and chief operating officer. Higher global food prices will impact people in less developed countries far more than those in the developed world who can more easily adapt to higher prices."

The world, through new agronomic technologies, may be able to support a biofuels industry while also feeding the world. But, is it really that simple and is that the end of the story?

Capabilities vs. responsibilities

"As leaders, we should be asking ourselves, 'What prices are we prepared to make the world’s poor pay for food?" poses Page.

"As a developed society we will have the capability to produce both food and renewable fuel," he explains. "But what will be the cost to those who can least afford it? As a responsible society, we need to think and plan carefully as we navigate new ground and continue to face the challenge of providing food to an ever-expanding world population."

In promoting biofuels, policymakers must face this challenge head-on. He urges policymakers to consider the impact biofuels promotion will have on food and feed supply chains, and on choices around land and crop use. As competitive pressures build over the use of land for food, feed and fuel, the costs of all three will rise.

Let market work

"We believe market forces and sound economics offer the best solution for providing a balanced biofuels policy," says Page. "Biofuels economical viability has been enhanced by government support such as mandates, targets, incentives and, in some cases, trade barriers. While governments will make choices to promote biofuels with these measures, inflexible government mandates risk creating inefficiencies and exerting unnecessary pressures on food and feed supply systems, pressures that are likely to be inconsistent with market demands.

The more that biofuels markets are based on market forces and sound economics, the better. Government incentives should provide sufficient flexibility to allow markets to work and to allow relief from market distortions that mandates and other government programs can cause. Also, biofuels investors will react more rationally to incentive tools that move the industry toward free-market fundamentals.

Short-crop disruption

The United States has blessed by not having a serious nation-wide drought for several years. However, the more crops we devote to fuel, the greater impact drought or other stresses will have on our food and feed systems.

"An effective and non-political waiver of the biofuels mandate, that has the actual effect of relieving pressure on food and feed systems, is the best way to ease pressure in such times of stress," recommends Page. "An effective waiver mechanism should be removed from politics, be transparent and be predictable for both investors and producers."

Keep trade open

"In addition, biofuels should be freely traded worldwide," says Page. "Open trading arrangements for biofuels will provide flexibility to our domestic biofuels markets and greater cooperation and integration with our biofuels trade partners around the globe.

"Global trade in biofuels should comply with international trade rules and agreements by ensuring equity for all countries as well as industry and trade participants," he says.