Food security risks of liquid biofuel production

by Andrea Rossi and Yianna Lambrou

Growing global demand for liquid biofuels may affect three dimensions of food security – availability, access and stability. Large-scale plantations for liquid biofuel production (LBP), with their high input requirements, may divert land and other resources, such as water, away from food crops. In addition, these plantations, due to their high profitability, may be established on high-quality lands, reducing the availability of such lands for growing food and subsistence crops.

The potential loss of agro-biodiversity poses a serious threat to rural livelihoods and long-term food security as well. LBP may also have a negative impact on the livestock sector, which is key to the food security of rural households, through a reduction in the availability of grazing land and an increase in the price of livestock feed due to the growing use of agricultural commodities for LBP. All these factors, combined, might negatively affect food availability.

At the same time, liquid biofuel production has an impact on food access. The emerging liquid biofuel industry is a new, fast growing source of demand for agricultural commodities such as sugar, maize, oilseeds, palm oil and cassava. This, combined with other factors such as income and population growth, adverse weather conditions, and new or additional trade barriers and export restrictions, has contributed to higher food prices. Some studies have tried to measure the impact of LBP on food prices, reaching different conclusions. According to IFPRI's estimates, in 2000-2007 increased demand for liquid biofuels has contributed to 30% of the growth of cereal prices, calculated as a weighted average.

Rising prices of food, feed, fuel

Demand for agricultural commodities for food, feed and, in particular, fuel is expected to continue to increase rapidly in the future. OECD/IEA estimates that, between 2008 and 2017, 20% of world vegetable oil production and 13% of world coarse grain production could shift to liquid biofuel production, up from 9% and 8% in 2007. Regarding the future impact of liquid biofuels on food prices, IFPRI projects that, in 2020, real prices of oilseeds and maize will be 18 and 26% higher than in the scenario with LBP at 2007 levels. According to OECD/IEA, current biofuel support measures alone are expected to increase average vegetable oil prices by about 19%, maize by around 7% and wheat by about 5% in 2008-2017.

Higher food prices represent an opportunity for food-exporting developing countries, which can enjoy increased export revenues; similarly, at the household level, net producers of food stand to benefit from increased food prices, through a positive income effect, which might result in an increase in food access for these households.

Forty-three of the 52 Least Developed Countries (LDCs), however, are net importers of food. Significant increases in food prices threaten the trade balance and, more in general, the macroeconomic stability and overall economic growth of these countries, which will also struggle to meet domestic food demand17. According to OECD/FAO, projections show greatly increased vulnerability and uncertain food supplies for these countries, due to high commodity prices and high price volatility.

As increases in food prices are transmitted from the global to the local markets, households that are net purchasers of food, particularly those that are also at risk of being excluded from LBP, such as female-headed households, will be negatively affected as well. Most households in LDCs and particularly Low Income Food Deficit Countries fall into the category of net food purchasers. In Malawi and Bangladesh, for instance, only 11.8 and 15.7% of households, respectively, are net staple food sellers, with higher percentages in rural areas and lower in urban areas. Among poor rural households with less than a dollar a day, the percentage of net sellers is even lower: 8.6 in Bangladesh and 7.6 in Malawi.

Food budgets of poor households

Poor rural households spend 50 to 70% of their budget on food. In addition, in low-income households, staple food commodities such as corn and wheat account for a larger share of food expenditures. Access to food might be considerably reduced for these households. In addition, higher food prices reduce the purchasing power of net-food-buyer households, affecting the purchase of other goods and services such as drinking water, health care, education, and lighting, all of which represent important inputs into nutrition and are, at the same time, key to the welfare and health of household members.

The welfare losses or gains associated with food price increases do not seem to be equally distributed among female-headed households and male-headed households. According to FAO, in most national, rural and urban samples, female-headed households suffer greater proportional welfare losses - or benefit from smaller proportional welfare gains - than male-headed households. This is the case both for the population as a whole and for the poorest segments of it.

Where female-headed households are over-represented among the poor, or are more likely to be poor, it is expected that their welfare losses will be higher, due to the fact that poorer households spend a greater percentage of their incomes on food than richer ones. However, even when male-headed households are over-represented among the poor, female-headed households may still have greater welfare losses, such as in Nicaragua. This is due to two main factors. Firstly, it has been observed, in many different contexts, that, all else equal, women tend to spend on food a greater share of their income than men. Secondly, as was already discussed, female-headed households have less access to land, capital, technology and markets than men and thus are less able to participate in commercial agricultural production and to benefit from an increase in the price of agricultural commodities.

Finally, the rising demand for liquid biofuels could make the prices of food more unstable. This would have negative repercussions in particular for poor households and vulnerable groups, including women, which tend to be particularly exposed to chronic and transitory food insecurity, due also to their limited access to income-generating activities.