Feeding the power

As the developed world's thirst to replace petrol and diesel with biofuel grows, the global food chain will be under even greater pressure.

A controlled experiment, perhaps: divide a country in two, and feed only one half properly. One way to see the importance of good nutrition is to look at the countries on each side of the Demilitarised Zone on the Korean peninsula. In North Korea, plagued by endemic food shortages for decades, average heights are 18cm shorter than in richer, better fed South Korea.

Nutrition has risen to the top of global policy makers' list of issues, arguably displacing terrorism, after an astonishing rise in global food commodity prices in the past year that has left many of the world's poorest, earning a dollar a day and already spending most of this on staple foods, facing catastrophe.

In the words of the United Nations Food programme: "From Burundi to Haiti to Afghanistan, the poorest of the poor are eating mud cakes and flour that is blue with mould, or skipping meals, sometimes for days. Even before this crisis, there were more hungry and malnourished people than ever, 850 million. But now an estimated 100 million more are joining their ranks."

At least 14 countries have been racked by food-related violence. In Malaysia, Prime Minister Abdullah Ahmad Badawi is struggling for his political survival because of voters furious over food prices.

In Bangladesh, more than 20,000 factory workers protesting against food prices marched through the streets recently, injuring at least 50 people. And in Haiti, Prime Minister Jacques Edouard Alexis was forced to step down in April after hungry mobs rampaged through Port au Prince, the capital.

In India, food markets stand empty and the number of milk offerings to Hindu deities that take place daily across the country has plummeted, while the government has banned the export of pulses and rice.

Two dozen people have been killed in riots in Cameroon; Egypt's President ordered the army to start baking bread; the Philippines has made hoarding rice punishable by life imprisonment.

Even the developed world, where prices are less felt as transport and retail mark-ups form a large slice of costs, is facing some tough choices. Japan, despite a long-standing cultural aversion to GM rice, has been importing it for the first time. CNN reports that the Meals on Wheels charity in the US is being cut back.

Behind the price hike

The reasons attributed to the rise in food costs on the international markets are many, and reflect, in part, a snowball effect. The long-term trends are worth looking at. The most obvious one is a population growing at 80 million people a year, says the head of Baring Asset Management's agriculture fund, Jonathan Blake. He added that "pressure on food prices is immense", and that "limited resources and bottlenecks mean that supply is struggling to keep pace with demand".

There are other underlying trends. 'Horizontal' urbanisation in China and elsewhere in Asia has destroyed prime arable land, forcing the Chinese to buy more on the global market. There has been a series of terrible droughts in great food producing countries, particularly Australia, for several years, attributed to global warming. The recent emergence of big middle classes in India and China with appetites for meat has increased the demand for grain (used as animal feed). 

On top of these underlying trends, oil prices are surging at $140 a barrel or more, and food production is oil intensive: fertilisers, fuel used in transport and harvesting. The high prices have led to countries panic buying on the large US grain exchanges, all have been fighting for a smaller global supply on the market: large food producers such as Argentina recently banned grain exports. Speculation has driven up costs as investors fleeing Washington's mortgage troubles have been ploughing billions into commodities futures, raising prices further.

Biofuels

The extent to which biofuels play a part is controversial. Biofuels - crops turned into ethanol to fuel adapted cars - are occupying an ever greater proportion of the world's farmland acreage. They supply only a few per cent of the world's transport fuel needs, but both the European Union (EU) and US are committed to expanding their use. Europe has a target of 10 per cent of its transport needs by 2020. The Bush administration has made a pledge to produce 60 billion gallons of ethanol by 2030, about 25 per cent of its transport energy use.

The US conversion of corn (maize) to fuel in the last ten years has increased sevenfold to 3.5 million bushels (a bushel, a standard grain measure, is about 25kg) of corn. Up to a quarter of America's huge corn harvest this year will be turned into ethanol, assisted by a 51 cents a gallon subsidy introduced by the Bush administration last year in a move to create energy security, but which many analysts regard as reckless. The expansion of corn production has harmed other crops, as soy bean fields are planted with the more profitable corn, with a knock-on effect in other countries.

But is it as bad as some say? Edward P Lazear, chairman of President Bush's Council of Economic Advisors, has argued that ethanol production only accounted for between 2 per cent and 3 per cent of the overall increase in global food prices. Recent findings that the cultivation of some biofuels is not as greenhouse gas friendly as thought is indeed a strike against them, but whatever their carbon emissions, it is worth noting this. Rice prices have gone up by 80 per cent despite not being a biofuels crop; nor has US corn displaced rice since most rice is consumed within 90 miles of source. Contrary to belief, corn has not reduced US wheat production, which is at similar levels to previous years, although growing exports have led to all time low reserve stocks.

The US Department of Agriculture says corn is only used in a third of food products, and much of the price of food, in the rich world, comes from associated costs such as transport, marketing, packaging and labour. As for corn, most of it used for ethanol - about 25 per cent - is not lost to fuels, as divested of its starch for ethanol, it retains all its proteins and minerals and is a much used feed for animals, known as distillers' grain. (Only a few per cent is used for human consumption: corn sweeteners, drinking alcohol.)

It's worth noting this: setting aside the costs of biofuels, turning much of US arable land over to a crop mainly used as animal feed, and thereby meat, is a very inefficient converter of calories, as 700 calories of grain results in 100 calories of meat.

The near future?

So far, only Haiti's government has fallen, while many countries have taken measures to moderate the hikes. The simplest measure is to cut import taxes on food. Other countries have issued ration cards or hiked wages of public servants. The World Bank is doubling its lending to Africa, to pay for measures like these. President Bush has asked congress for $770m food aid.

The market is also beginning to offer some relief. According to a report in the Financial Times, by mid-May, recent rises for foods appeared to have peaked. This is partly because farmers respond to high prices, with increased production, and Europe for one is proposing to abolish its set asides.

The US Department of Agriculture estimates that there will be as many as 90 million acres of corn planted this year in the US and tens of millions of acres more planted in South America and elsewhere.

Wheat futures for July are priced at $8 a bushel, the lowest since August 2007. The days of very cheap food are over, but the problems are likely to ease slightly.

Yet with prices high, it is worth noting that more expensive food has the capacity to do enormous good as well as enormous harm. And that the current crisis is actually an opportunity.

Half a century of food security in the West, from US subsidies to the EU common agricultural policy, has led to higher taxes, worse food, and production that wrecks the lives of farmers in poor countries.

In past decades, producers in developing countries were squeezed out of the just-in-time, integrated global production by the subsidies given by Western governments to make them competitive in world markets. This dumping pushed many farmers in Africa and Latin America into bankruptcy, infrastructure corroded; back-up stocks disappeared, and the inability to respond to food crises was established.

In the wake of the recent food riots in Haiti, it was noted that the bags of rice had American flags on them. Haiti produces less rice than in the 1980s because the US forced the country to liberalise its markets and flooded the market with cheap, subsidised rice produced by US farmers. Subsidies have also led to food so cheap (and in the past of food mountains) that an unprecedented number in the West have been wallowing in poor health caused by obesity.

Dearer food is a chance to break with the subsidy system. With prices as they are now, for once Western farmers can earn from what they can sell without subsidies.

The World Bank has argued that if you free-up trade and abolish price support, the prices of things that developing countries are good at like cotton would rise and developing countries would capture the export market.

Since farming accounts for about 70 per cent of jobs in poor countries, this is an important contributor to poor countries' early economic growth. And the World Bank says it helps the really poor, who get three times as much extra income from an increase in farm productivity as the same gains in industry and services. In addition to free trade, a series of measures to help agriculture in poor countries should be carried out.

Microfinance schemes, new seeds, irrigation methods, fertilisers and assured output prices are a few suggestions from the International Food Policy Institute. Developing countries should spend more on agricultural research, which lapsed in the 1980s when the food problem was thought solved.

All this will take a while. Food prices tend to be 'sticky', as food always takes a season to grow. The only really large amounts of fallow land lie in Brazil and Russia; and acreage, not just yield, will have to expand, says Jeffrey Currie, head of global commodities research at Goldman Sachs.

Finding a new seed can take years; and seeds are a bit like flu vaccines: they have to be updated, or pests and disease negate their effectiveness.

Rice that was yielding ten tonnes a hectare in the 1960s now yields just seven - the cost of neglect in agricultural research. Yet it is worth it. In terms of returns on investment, it would be easier to boost grain yields in Africa from two tonnes per hectare to four than it would be to raise yields in Europe from eight tonnes to ten.

So where does that leave biofuels? No one, as the Financial Times put it, believes that biofuels are the main contributor to higher food prices.

What of future developments?

Critics of biofuels such as researchers at the Polytechnic University of New York have calculated that: "The United States consumes 170 billion gallons of gasoline and diesel fuel annually. Thus the entire US corn crop would supply only 3.7 per cent of our auto and truck transport demands. Using the entire 300 million acres of US cropland for corn-based ethanol production would meet about 15 per cent of the demand."

A land from sea to shining sea covered by the yellow plant for a modest petrol substitution figure would indeed be a disaster for US agriculture and, since America is the world's bread basket, the world's food supplies.

Such figures, if true, reflect the fact that US agricultural methods are highly energy intensive and, if fossil fuels are discounted in the exercise, will effectively use a lot of ethanol-as-fuel (in converted tractors, etc) to produce ethanol.

The Woodrow Wilson Centre, a think-tank, calculated that Brazilian sugarcane has an energy ratio seven times greater than that of corn. That is, for every unit of energy put into sugarcane, there are seven units more coming out than the same equivalent applied to corn.

Brazil has plenty of rain; sugarcane is one of the most efficient photosynthesizers in the plant kingdom, able to convert up to 2 per cent of incident solar energy into biomass. There are two harvests a year, and production is not fuel intensive. Brazil ships its ethanol from plant to port in pipelines. US corn-derived ethanol costs 30 per cent more because the corn starch must first be converted to sugar before being distilled into alcohol. The US uses three times as much arable land to produce six billion US gallons of ethanol annually as Brazil.

Further, Brazil has lot of fallow land: degraded pasture, equivalent to 1.5 million km2. A quick calculation reveals that at current yields - and biotechnology is working to improve those all the time - even America's gargantuan consumption could be provided in that degraded pastureland, equivalent to 20 per cent of Brazil's arable land.

Land use conversion from degraded pasture releases little carbon, admits even Tim Searchinger of Princeton University whose study on the hidden costs of biofuels in Science magazine made waves. Neutralising the biggest car user in the world, and all without touching the rainforest. Africa too has considerable unexplored potential for growing sugarcane.

The argument for free trade applies here as well. If the US stopped its subsidies of corn to ethanol programmes, and the EU and US both abolished their tariffs, the highly inefficient (and greenhouse gas emitting), energy intensive corn-to-ethanol farrago (and its smaller scale equivalents in Europe) would face a lot of salutary competition from Brazil's highly competitive sugarcane industry.

The British Chancellor of the Exchequer, Alistair Darling, seems to be on track with free trade. At the end of May, he sent a letter to EU colleagues appealing to reduce or suspend the import tariffs applied to agricultural commodities. The Common Agricultural Policy is up for review later this year.

Freeing up agricultural trade would not solve the problems of China's industrial development, its need for fuels for a car pool growing by leaps: already the world's second largest automaker, the country will overtake the US by 2015.

But proponents of biofuels would say it is only one tool in the toolbox: smaller, less thirsty cars, more electric ones, hydrogen vehicles will all be part of the solution.

Biofuels may not be a huge contributor to the food crisis, but allegations in that direction are a good reminder of dire consequences for agriculture and food supply if biofuels were treated as the single-bullet solution and an all out effort made expand it without adjustments.

With the right policies, though, its contributions, on not too ambitious a scale, can be useful.

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