Food safety and development of rural areas

At the heart of current debate on biofuels markets, the development of rural areas and food safety issues are of great concern. When considering the nexus between biofuels and rural development, four main aspects are specified in current literature: (1) social benefits of biofuels policy; (2) food security versus land management; (3) public sector intervention; and (4) enhancement of second — generation biofuels from non-food crops. Dufey (2006) offers a comprehensible review of social benefits of biofuels production accruing in developing as well as developed countries. In general, increase in employment generation in rural areas is mostly dependent on the type of crop used for biofuels production (e. g. sugar cane), although this should be seen according to market structure and income distribution. Given that agricultural production in rural areas is mostly labour­intensive, extra demand for agricultural products is likely to increase wages and employment. There are significant effects on job creation by either employing feedstock conversion practices or acquiring feedstock locally. Small-sized farmers could accelerate multiple income effects (Hazell and Pachauri, 2006). As a consequence, increased liquidity in local markets would have positive repercussions on the economy of rural areas. In Brazil or United States, for example, large firms control the bioenergy industry, whereas in developing countries small-sized growers organised in cooperatives represent an important link between large corporations and independent farmers.

The second aspect of biofuels policy is the question of food safety versus land management. Rosengrant et al. (2006), with the use of the IMPACT model (developed by the International Food Policy Research Institute at the Consultative Group on International Agricultural Research), examine the interactions between the demand of land for biofuels feedstock and the demand of land for food purposes and analyse how these interdependences affect food commodities and prices. The authors consider three main scenarios: (a) a massive growth in biofuels and no changes in productivity; (b) use of second-generation biofuels in current agricultural practices; and (c) considerable biofuels growth with changes in agricultural productivity and switch to production of second-generation biofuels. Results suggest in case (a) a remarkable increase in food prices causing sizeable losses in rural areas in developing countries. The need of subsidising biofuels would then arise with consequent distorting mechanisms due to unproductive agriculture and bioenergy sectors. In the second scenario (b), a change in technology would increase food price but at a lower rate compared to the first scenario. Finally, the last scenario (c) shows that a combination of technology improvements and productivity increases would alleviate shocks in food prices and favour the growth of small-sized farmers devoted to the supply and development of local markets.

The International Centre for Trade and Sustainable Development (2008) argues on competition of land for food versus land for biofuels feedstock. In principle, higher food prices would not automatically affect poor people. Rather, increases in food prices could be seen as an income generator for farmers working in poor rural communities. This vision is, however, not totally shared by a number of researchers (Naylor et al., 2007; Goldemberg, 2008) and institutions (World Bank, 2008). In particular, Goldemberg (2008) recalls that the problem of land competition over food and biofuels production should be seen as a problem of food safety versus climate issues. The entire ‘food question’ is the consequence of a renewed interest in the agricultural sector because of the ease of profits in biofuels energy production. Extended agricultural practices affect increases of indirect emissions of carbon as well as other dangerous GHGs (e. g. NOx) and contribute to deforestation and biodiversity losses.

Naylor et al. (2007) argue on the increasing rate, over the last years, in demand for energy commodities as incomes rise. This scenario would determine increases in energy as well as food commodities prices reversing, in the latter case, what was once the long-term declining trend in agricultural prices. The volatility of food prices causes strong impacts on undernourished population which typically spends almost all its income on food commodities. Linkages between food and energy prices are inevitable. While these were once seen in terms of agricultural energy inputs, nowadays these could be determined by the revenue prices of feedstock for biofuels production required to cover production costs. At international level, these relationships would be most difficult to determine given a number of determinants affecting food and energy prices such as the demand elasticity of agricultural commodities, national policies over land management for biofuels and food crops and the presence of institutional support to incentivise biofuels production. There are only few quantitative models which explain international transmission of price volatility for biofuels and agricultural commodities (Abdulai, 2000; Conforti, 2004; Schmidhuber, 2006; Peri and Baldi, 2008; Hertel and Beckman, 2010), and these focus either on national case studies (i. e. Ghana, Iran, Italy, United States) or selected agricultural crop and biofuels commodities. A further implication on food security and undernourished population is food aid. There is an inverse relationship between shipment aids (from richer countries) and food prices (Falcon, 1991; del Ninno et al, 2007). Countries relying on food aid (i. e. Sub-Saharan African or Southern Asian countries) are subject to substantial domestic critical effects (i. e. production and land availability, internal market prices instability, government responses) in the presence of global food price increases. The general trend in food and energy prices and the consequences on world food safety is also recognised by the World Bank in its recent document submitted for and approved by the G8 meeting in 2008 (World Bank, 2008). The rise in food and energy prices (Fig. 2.1) causes important macroeconomic effects mostly on domestic economies.

Inflation, for example, is hitting developing economies that are fighting to keep the percentage between five and seven per cent (Fig. 2.2). The same countries are now experiencing fluctuations in inflation rates because of price increase in oil, food and other basic commodities.

image4

2.1 Commodity price indexes in nominal terms (author’s elaboration on World Economic Outlook Database [International Monetary Fund, 2009]).

image5

2.2 Inflation rates for selected economies (author’s elaboration on World Economic Outlook Database [International Monetary Fund,

2009]).

Worsening of balance of payment also causes a reduced capacity of developing countries to sustain (by reducing official reserves) import exposure in the immediate future. Most of the emerging economies show in fact a negative trend in changes of official reserves over the last decade (Table 2.1).

Furthermore, when emerging economies are also energy-intensive importers, a damaging effect in terms of trade contributes to exacerbate their institutional and economic vulnerability. Pressures on wages and other costs become inevitable for

Table 2.1 Changes in official reserves in billion US dollars

Year

Africa

Central

Eastern

Europe

Commonwealth of Independent States

Developing

Asia

Western

hemisphere

1999

-1.169

-9.987

-6.521

-25.994

5.659

2000

-13.321

-4.445

-20.376

-16.578

-6.701

2001

-10.393

-1.719

-14.367

-58.825

1.824

2002

-5.749

-8.049

-15.079

-110.84

1.466

2003

-10.878

-10.761

-32.697

-166.8

-33.611

2004

-31.595

-12.82

-54.896

-258.75

-22.176

2005

-43.233

-44.059

-77.092

-235.16

-33.492

2006

-54.505

-32.668

-127.79

-322.57

-50.298

2007

-61.079

-36.272

-168.05

-629.46

-133.09

2008

-53.553

-5.665

33.187

-437.54

-51.479

2009

13.852

-1.873

20.807

-329.3

-19.322

Source: World Economic Outlook Database (International Monetary Fund, 2009).

such countries where fiscal and monetary policies are too vulnerable to food and energy price fluctuations. This and the rise of income inequality (including the aggravation of poverty) in developing countries asks for immediate implementation of adequate policies.

G8 as well as United Nations countries agreed on a number of initiatives. First, a continuous support to fund the World Food Programme in addition to the provision of financial and technical assistance for the supply of agricultural commodities. Second, in a longer term perspective, investments in agricultural and rural infrastructures to guarantee market access especially in African, Southern Asian and small island countries. Third, enhancing technological investments in developing as well as developed countries for second — and third-generation biofuels from cellulose-based ethanol products. And fourthly to promote the reduction in trade tariffs for biofuels commodities and improve the functioning and implementation of international agreements (e. g. the Doha Round) affecting agricultural markets (World Bank, 2008).

The public sector plays a substantial role in the development of rural (and also industrialised) areas and the mitigation of competing food markets when enhancing biofuels activities. The use of land for biofuels feedstock could have negative impacts on the demand for food commodities causing food prices to increase due to scarcity of productive land for food production. Lack of sufficient natural resource endowments for biofuels crops causes consistent losses especially in poor areas. A price increase in food commodities would in fact be detrimental to those farmers experiencing a net deficit of food production. Unjustified repercussions on consumer prices would then occur (in rural/poor areas) where demand elasticity of agricultural products is high. To avoid the occurrence of vast social costs, public intervention becomes a necessary tool which helps reduce market failures and rebalance trade-offs between food and bioenergy through adequate supporting policies (Hazell, 2006). These can be in the form of incentives: to increase the productivity of food production such that additional land and water can be used for biofuels crops; to convert infertile lands to second-generation biofuels; to use by-products from food production to boost bioenergy commodities; and to remove barriers to trade and promulgate the benefits of competitive markets for biofuels commodities at any scale of technology. Supporting policies would also guarantee independent and small-sized farmers in less developed countries the opportunity to process bioenergy commodities at local level. In addition, the identification of all stakeholders in the biofuels chain becomes fundamental when setting policy targets in the food sector at national level. The Brazilian example is a success. First for the recognition of new demand in environmentally friendly automobile industry through the use of ethanol fuels; second for setting subsidies to enhance economies of scale in the agricultural as well as the automobile sector; third for integrating the private sector in the public management for electricity supply from bioenergy products; and fourth for creating new stimulus to rural activities employed in biofuels production.

There exists, undoubtedly, a connection between developed and rural areas for biofuels production. Large-scale biofuels activities in developed countries may reduce the export of food products pushing the prices of these goods up. This would in turn positively affect rural areas in developing countries benefitting from higher net surpluses in food commodities. Contrarily, higher world food prices would also mean scarcity of food products for poor households living in rural areas. When this negative effect is counterbalanced by higher employment and income perspectives in the biofuels industry, the net impact at aggregate social level generates economic growth led by the agricultural system. From this angle, biofuels chain can make a substantial contribution to combat poverty and improve food safety. The production of energy from bioenergy crops, together with the sustainable use of local resources, could result in higher standards of living for the rural society as a whole. Additional energy resources to the local community would finally contribute to the local development of rural economic activities including agricultural enhancements and food security.

A final aspect to discuss concerning the link between biofuels/bioenergy and rural development is the enhancement of second-generation biofuels. Studies on jatropha production in African countries (Venturini Del Greco and Rademakers, 2006) indicate several benefits at community level. These benefits derive from an integrated approach run by public enterprises (and managed by private firms) to jatropha production such as electricity consumption, milling services, additional oil for sale purposes, by-products for use in soap manufacturing and fertilisers use. Van der Plas and Abdel-Hamid (2005) argue in favour of biofuels from wood production in rural areas in Sub-Saharan African countries. Of relevant interest is the demand from urban centres and the transparency of relationships (contractors, distribution of rents, etc.) between these urban centres and rural areas supplying biofuels. The intricate but efficient legal network thus running in these areas contributes either to the enrichment of small farmers’ wealth or to the sustainable resource use.