global bioenergy supply chain intelligence

The Geopolitics of Hoarding: Biofuels and Resource Scarcity

In an era of increasing food, energy, land, and water insecurity, nations are increasingly turning to hoarding.  Sitting at the nexus of all four, biofuels are playing a complex role in geopolitics.

Biofuels — whether grown domestically or abroad — sit at the nexus of not only food and energy, but also land and water.  As all four become more scarce, developed and developing nations alike are turning to hoarding.  Combined with hoarding, biofuels can hasten land, water, and food scarcity.

Writing for the UK’s Financial Times in February 2010, Gedeon Rachman described the UK’s increasing reliance on securing food as well as energy security as, “No mere national eccentricity.”

On the contrary, he writes:

[T]he fact that even the free-trading British are worrying about food and energy supplies is indicative of a much broader global trend.  Across the world, the major powers are moving to secure access to energy, food and, in some cases, water.  Faith in a trade-based system of globalisation – in which nations can always buy what they need on the open, world markets – is giving ground to an effort by individual nations to secure supplies.  Like survivalists, hoarding tinned food in the basement, individual nations are preparing for the worst.

The evidence is in the pudding.  Increasing oil prices and fears over peak oil are driving a global push for renewable energy.  Take China as an example, which is sending state-owned oil companies abroad where they are engaging in ferocious bidding wars with western energy companies as they go after access to the same oil and gas fields, particularly in Africa.  Middle Eastern investors, in particular the Saudis and the Gulf Arabs, have been leasing huge tracts of land in East Africa, in an effort to grow food that is reserved for their own nations.  In the US, domestic ethanol production has led to disruptions in the global food markets.  In Europe, supporters of the protectionist Common Agricultural Policy are freshly emboldened.

The new global paranoia over food and energy security is driven by four factors, explains Rachman:

  1. Economics
  2. Demography
  3. The environment
  4. Geopolitics

These issues are likely to become increasingly intertwined over time as the world’s resources become increasingly scarce.

The issue of hoarding raises difficult questions around the future of biofuels within the global system of trade, which can play a role in siphoning off key resources needed to grow food.  Domestic biofuels policy, accordingly, must always reflect geopolitical realities or it risks exacerbating food shortages abroad.

For example, what happens when the US diverts more grain for domestic ethanol production?  Or what happens when Middle Eastern countries buy up tracks of land in East Africa to produce food when they can’t at home due to severe water shortages?  As far as food prices go, it can get very complex.

Take for example a recent AP special report, which highlights some of the dynamics involved.

The investigation explains that families from Pakistan to Argentina to Congo are being battered by surging food prices that are dragging more people into poverty, fueling political tensions, and forcing some to give up eating meat, fruit and even tomatoes:

Scraping to afford the next meal is still a grim daily reality in the developing world even though the global food crisis that dominated headlines in 2008 quickly faded in the U.S. and other rich countries.  With food costing up to 70 percent of family income in the poorest countries, rising prices are squeezing household budgets and threatening to worsen malnutrition, while inflation stays moderate in the United States and Europe. Compounding the problem in many countries: prices hardly fell from their peaks in 2008, when global food prices jumped in part due to a smaller U.S. wheat harvest and demand for crops to use in biofuels.

The U.N. Food and Agriculture Organization’s food price index — which includes grains, meat, dairy and other items in 90 countries — was up 22 percent in March from a year earlier though still below 2008 levels.  The index shows that in some Asian markets, rice and wheat prices are 20 to 70 percent above 2008 levels.

The article explains that no single factor explains the inflation gap between developing and developed countries.  Generally, poorer economies are more vulnerable to an array of problems that can push up prices.  This year, for example, farmers with less land and irrigation have been hit harder by drought and floods.  Civil war and other conflicts disrupt supplies.  Prices in import-dependent economies spike up when the local currency weakens, as Pakistan’s rupee has this year.

Costs also have been pushed up by a rebound in global commodity prices, especially for soy destined for Asian consumption.  That has prompted a shift in Argentina and elsewhere to produce more for export, which has led to local shortages of beef and other food. The global financial crisis hurt food production in some countries by making it harder for farmers to get credit for seed and supplies.

Although biofuels are not solely to blame for rising food costs, combined with a global trend towards hoarding, they can have an adverse impact.

Patrick Westhoff, author of The Economics of Food: How Feeding and Fueling the Planet Affects Food Prices, revisits some of the arguments levied against biofuels when US food inflation hit 5.5 percent in 2008.  Westhoff explains that while biofuel critics argued that biofuel production meant less grain was available to feed people and livestock, biofuel supporters argued that other factors explained the sharp run-up in food prices in 2007 and 2008.  Among these: poor crops in other countries, changes in diets caused by economic growth in Asia, devaluation of the dollar, higher oil prices, and market speculation were all cited as the real causes of higher food prices.

Westhoff argues that both sides have it partially correct:

Both sides make valid points, but overstate their cases. Growth in biofuel production did contribute to higher food prices, but so did a wide range of other factors.

Ultimately, Westhoff concludes, farm and biofuel policies do have important effects, but it is important to keep them in perspective.

Despite the many grievances filed against biofuels, including their role in increasing food commodities, diverting water, and removing land for food production, we can not afford to ditch them altogether.  We need biofuels just as we need other sources of alternative energy, and thus, policy should be carefully crafted to reflect the added pressure it puts on scarce land, water, and food resources.

More on food crisis hitting poorer countries.

Images: Flickr/Ishmael78; lumierefl


The New Energy Geopolitics: the Biofuel-Land Nexus

Biofuels and the Growing Specter of Water Wars

Resource Wars: 3 Constraints that Could Make or Break Biofuels

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