STRAINING THE LINKS BETWEEN BIOFUEL
POLICIES AND FOOD INSECURITY IN
DEVELOPING COUNTRIES
Wyatt Thompson and Ignacio Pérez Domínguez
17th ICABR Conference, 19th June 2013, Ravello (Italy)
Introduction
• Fuel versus food debate:
– concern about the agricultural commodities used for biofuel
production causing food insecurity in developing countries
– one-for-one as the extreme case
• Need for a more nuanced view:
– Biofuel expansion not only driven by policies but also by price
increases of crude oil
– Domestic and international markets have different links  price
elasticities have a relevant effect
• This paper tries to decompose the link between a biofuel
policy in a developed country (US) and food use in a group of
developing countries (Africa and Asia least developed)
OECD Trade and Agriculture Directorate
2
Steps from a biofuel demand shock in a
DVD country to food use in DVG’s
Increase in US corn
use for ethanol
Increase in US
biofuel mandate
(scenario shock)
OECD Trade and Agriculture Directorate
Reduction in corn
imports (developing)
Reduction in corn
exports (US)
Reduction in corn use
for food (developing)
3
Methods and Data: Aglink-Cosimo Model
• Partial equilibrium model: agriculture, fish/seafood
and biofuels
• Co-developed by the OECD (Aglink) and the FAO
(Cosimo)
• Net trade model for representative commodities,
world coverage
• Model release linked to the yearly OECD-FAO
publication on medium-term projections for
agricultural markets (2013-2022 last week in Beijing)
• Data coming from experts (country questionnaires and
FAO databases)
• Detailed biofuel module for the major producers: US,
EU, Brazil (see next presentation)
OECD Trade and Agriculture Directorate
4
Baseline projections: coarse grain per
capita food use (in 2022, kg/person/year)
• High consumption of coarse grains by African and
Latin-American countries
Baseline projections: veg. oils per capita
food use (in 2022, kg/person/year)
• High consumption of vegetable oils by Asian
and Latin-American countries
Scenario: a higher fulfillment of the US
Renewable Fuel Standard (RFS)
• What does this mean?
– Higher mandated biofuel blending in the US
– Lower than mandated cellulosic production
(waiver)  mandate waived but not as low as in the
baseline, 5 billion additional liters
• Implications
– Greater demand for conventional biofuel
feedstocks in the US: maize for ethanol and
vegetable oils for biodiesel
– More biofuel production
– Higher feedstock prices and less exports from the
US
– Small effects on developing countries
Impacts on grain markets
Baseline
Scenario
Absolute change
Percent change
150 mt
152 mt
+2 mt
+1.3%
228.4 usd/t
229.7 usd/t
+1.3 usd/t
+0.6%
USA net coarse grain
exports
61 mt
60 mt
-1 mt
-1.8%
Developing country
net coarse grain
imports
17.9 mt
17.8 mt
-0.1 mt
-0.5%
Developing country
coarse grain food use
52.0 mt
52.0 mt
0.0 mt
0.0%
USA biofuel use of
coarse grain
USA coarse grain
producer price
Impacts on vegetable oil markets
Baseline
Scenario
Absolute change
Percent change
USA biofuel use of
vegetable oil
3.2 mt
3.4 mt
+0.2 mt
7.4%
USA vegetable oil
producer price
1009 usd/t
1010 usd/t
+1 mt
0.1%
USA net vegetable oil
exports
1.6 mt
1.5 mt
-0.1 mt
-4.0%
Developing country net
vegetable oil imports
7.2 mt
7.2 mt
0
-0.1%
Developing country
vegetable oil food use
11.8 mt
12 mt
0
0.0%
How to identify the weakest link?
• Objective: trace the impacts from biofuel mandate to
food use in developing country by identifying the
transmission of impacts at each key step
• Method: push the shock further along in steps
1) RFS increase only (already seen)
2) #1 + shock on US demand for feedstocks for biofuel
3) #2 + shock on US exports of feedstocks
4) #3 + shock on developing country imports of feedstocks
5) #4 + shock on developing country food use of feedstocks
• Intuition: go from estimated impact to automatic
1-for-1 substitution to see differences
Example: steps for coarse grains
Step 1
Step 2
Step 3
Step 4
Step 5
Renewable Fuel
Standard program
Increased by
the amount
of shock
Increased by
the amount of
shock
Increased by
the amount
of shock
Increased by
the amount of
shock
Increased by
the amount of
shock
USA biofuel coarse
grain use
Rises in
response to
shock
Increased by
the amount of
shock
Increased by
the amount
of shock
Increased by
the amount of
shock
Increased by
the amount of
shock
USA coarse grain
exports
Falls due to
price effect
Falls due to
price effect
Decreased by
the amount
of shock
Decreased by
the amount of
shock
Decreased by
the amount of
shock
Developing countries
coarse grain net
imports
Falls due to
price effect
Falls due to
price effect
Falls due to
price effect
Decreased by
the amount of
shock
Decreased by
the amount of
shock
Developing countries
coarse grain food use
Falls due to
price effect
Falls due to
price effect
Falls due to
price effect
Falls due to
price effect
Decreased by
the amount of
shock
Coarse grain and vegetable oils used for
biofuel in the US
change from baseline, million metric tonnes
2.5
2.0
1.5
1.0
0.5
0.0
Step 1: RFS
Step 2:
only
+Biofuel Use
Step 3:
+Exports
Step 4: +DC
imports
Step 5: +DC
food
Coarse grain and vegetable oils production
in the US
change from baseline, million metric tonnes
0.5
0.4
0.3
0.2
0.1
0.0
-0.1
-0.2
-0.3
-0.4
Step 1: RFS
Step 2:
only
+Biofuel Use
Step 3:
+Exports
Step 4: +DC
imports
Step 5: +DC
food
Coarse grain and vegetable oils exports
from the US
change from baseline, million tonnes
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
Step 1: RFS
Step 2:
only
+Biofuel Use
Step 3:
+Exports
Step 4: +DC
imports
Step 5: +DC
food
Coarse grain and vegetable oils imports in
least developed countries
change from baseline, million tonnes
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
Step 1: RFS
Step 2:
only
+Biofuel Use
Step 3:
+Exports
Step 4: +DC
imports
Step 5: +DC
food
Coarse grain and vegetable oils food
demand in least developed countries
change from baseline, million tonnes
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
Step 1: RFS
Step 2:
only
+Biofuel Use
Step 3:
+Exports
Coarse grain
Step 4: +DC
imports
Vegetable oil
Step 5: +DC
food
Impact ratios
-1
Ratio : developing country
food use impact / divided by
intitial shock in feedstock
equivalent
-0.5
0.02
0.00
0.02
Demonstrates: weakness of
links after each stage
-0.01
Step 3
0.02
-0.12
-0.03
Step 4
Step 5
0.5
0.00
Step 1
Step 2
Cases :
Ratio = 0  no net effect
Ratio = -1  a one-for-one
trade off
Ratio > 0  crosscommodity effects play a
role
0
-1.00
-1.00
Coarse grain
Vegetable oil
1
Conclusions
• The scenarios reveal how expectations of agricultural
economists differ from the implicit assumption
underlying popular beliefs  the impact of a relatively
large shock on biofuel demand for coarse grains and
vegetable oils by a major producer, such as the US, on
food demand in least developed countries is found to be
very small.
• The impacts are mostly dampened through substitution
in trade and domestic markets.
• Negative calorie consumption effects in developing
countries are present once the shock reaches the
importing sector of biofuel feedstock commodities.
• Further research needed to expand the exercise to other
major biofuel producers and perform sensitivity analysis
Discussion
Visit our website:
www.agri-outlook.org /
www.oecd.org/agriculture
19