Bio-fuels caused food price rise: UN ESCAP

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The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) in its recent annual survey report for the region has cautioned that the global food prices would remain high and held bio-fuel programme responsible for the same.

"With grains and oil seeds the key feedstocks for bio-fuels, the oil price rise exerted by a strong push on agriculture commodity prices in 2007 which enjoyed their best performance for almost 30 years. As oil hit $100 per barrel in January 2008, soybean prices jumped to a 34-year high, corn prices approached their recent 11-year high, wheat prices were just below their recent all-time high, rapeseed prices rose to record highs and palm oil futures hit a historic high," the report said.

Not only ESCAP but UNCTAD, other UN agencies and OECD in their earlier reports had also held the bio-fuel programme responsible for the rise in global food prices.

ESCAP noted that for many countries in the region, food prices were a bigger inflationary concern than oil prices. "Food price inflation hits low-income households, so governments may need to target the poor with food stamps and cash," it said

As the march towards bio-fuels seems apparently unstoppable, the ESCAP report said that the region needed to prepare for imported inflation through higher food prices ."Governments need to carefully consider the impact of bio-fuels on the poor," it said.

In a box item in the report entitled – Bio-fuels : Friend or foe of the poor ? – it said that as per some projections, global demand for bio-fuel could rise from 10 billion gallons in 2005 to 25 billion gallons in 2010 or 20% rise per year. The United Nations projects that bio-fuels will be "one of the main drivers" of projected food price hikes of 20% to 50% by 2016. Higher food prices will most hurt the urban poor and the rural poor who are net food consumers, for whom food is usually the biggest expenditure item.

The box item, however, documented some potentials of bio-fuel programme for reducing poverty like farmers benefiting from higher demand for agricultural products (which has not yet occurred), increase in number of jobs and markets for small farmers, environmental benefits (which is also controversial in many cases).

By saying "sugarcane for ethanol has become more attractive for developing countries farmers" the box failed to distinguish between the ethanol programme and the controversial bio-fuel programme. Ethanol is largely produced from molasses, a byproduct of sugar. Molasses is either picked up by the breweries or used in production of ethanol. This practice of producing ethanol is non-controversial as it does not compromise with food security and is totally different in essence from today's bio-fuel programme, involving grains, oil seeds which has created food security problems.

Another thing, which the box item suggested, is that bio-fuels can hold down oil prices. This, however, has not happed. Rather on the contrary high oil prices have impacted bio-fuel prices and bio-fuel programme in turn impacted food prices.

The ESCAP report-2008 also said that rapid rise in food prices in 2007 was partly due to droughts in Australia, flooding in China and dry weather in Europe.

ESCAP urged the Asia-Pacific region to take the lead in mitigating and adapting to the global threat posed by climate change, both in international negotiations and in the application of new technologies to reduce greenhouse gas emissions. It urged the governments integrate their macro-economic, social and environmental policies to fully address the impact of climate change.

The ESCAP survey report called for removal of energy subsidies, currently valued at $250 billion a year globally, but specially applied in Asia-Pacific. It suggested a range of specific measures for promoting "green growth" like taxing older, less efficient vehicles, offering tax incentives to companies that invest in newer and cleaner technologies, lowering taxes on low-energy consumption lights and introducing more graded user charges on electricity.

In the area of land-use emissions, the ESCAP survey noted the cases due to deforestation, which accounted for 17% GHG emission in the region. In south and east Asia, 28,000 sq kilometer were lost each due to deforestation it said.