Economic balance on Competition for Arable Land between Food and Bioindustry

Transcription

1 Economic balance on Competition for Arable Land between Food and Bioindustry Jozsef Popp Research Institute for Agricultural Economics Budapest Challenges for Agricultural Research 6-8 April, 2009 Prague, Czeh Republic

2 Outline Outlook of biofuel production What happened in 2008 Food, environmental and energy security Pressure on global markets and local ecosystems to supply food The economics of ecosystems and biodiversity Land availability and technology uptake Conclusions

3 World fuel ethanol production (2008) 6% of the global feed grains and 10% of the global sugar production went to ethanol processing Total production: 65 bln l (est.) Canada Production: 1 bln l Feedstock: cereals U.S. Production: 34 bln l Feedstock: maize EU-27 Production: 3,7 bln l Feedstock:cereals (85%) sugarbeet (15%) China Production: 1,9 bln l Feedstock:maize, cassava Brazil Production: 22 bln l Feedstock: sugarcane Note: 30% of the US corn crop went to ethanol production, ethanol s share in the domestic fuel pool was 5% 54% of the Brazilian sugarcane production went to ethanol processing, ethanol s share in the domestic fuel pool was 50% The EU and US domestic ethanol prices are based on the export price of Brazil plus duty: EU: bioethanol imports in ,7 mln t (50% from Brazil) Source: F.O. Licht s World Ethanol & Biofuels Report [2009]

4 World biodiesel production (2008) 10% of the global vegetable oil production went to biodiesel processing Total production: 13 mln t (est.) USA Production: 2,4 mln t Feedstock: soyoil EU-27 Production: 7 mln t Feedstock: rapeseed oil (80%) Brazil 1 mln t Argentina 0,8 mln t Note: EU: biodiesel imports in ,7 mln t: 1,5 mln t from US; Commisssion has imposed duties - anti-subsidy duties up to 41%, anti-dumping tariffs) up to 29% on US biodiesel imports Forrás: F.O. Licht s, Rabobank [2009]

5 What happened in 2008 Higher petroleum and biofuel prices Cereal and oilseed supply and use was much tighter low stocks very strong non-biofuel demand Narrow ethanol and biodiesel plant margins normally higher margins expected at higher petroleum/biofuel prices But tight cereal (feed wheat, corn) and oilseed (rapeseed) situation means margins are narrow

6 Prices of ethanol, crude oil, feed wheat and maize in the EU (July, 2007 February, 2009) USD/m July 2007 August September October November Ethanol FOB R'dam (USD/m3) Feed wheat LIFFE (USD/t) December January 2008 February March April May June July 2008 August September October November December January 2009 February Brent crude IPE (USD/m3) Maize MATIF (USD/t) Note: Competitiveness of ethanol production depends on the relative prices of feedstock and fossil fuel Ethanol and crude oil parity prices (February 2009): at 0.50/l ethanol and $103/b crude oil price (but crude oil price was $44/b) Source: HGCA, Kingsman barrel: 159 l m3:6,3 barrel USD/t

7 USD/m3; EUR/m Prices of biodiesel, crude oil and rapeseed oil in the EU (January, 2008 February, 2009) January 2008 February March April May June July 2008 August September October November barrel: 159 l m3:6,3 barrel December January 2009 February EUR/t Biodiesel - Germany, ex-plant (EUR/m3) Brent crude (USD/m3) Rapeseed oil - Germany, ex mill (EUR/t) Note: Competitiveness of biodiesel production depends on the relative prices of feedstock and fossil fuel Biodiesel and crude oil parity prices (February 2009): at 0.85/l biodiesel and $174/b crude oil price (but crude oil price was $44/b) Source: HGCA, Kingsman

8 Trade distorsion in the EU and US (ethanol) Spot price (February, 2009) Spot price (February, 2009) U.S. ethanol (corn) $0.45 Brazilian ethanol + freight (sugarcane) E.U. ethanol (wheat, corn) 0.50 Brazilian ethanol + freight (sugarcane) + 14/l duty + 0,192/l duty + 2,5% ad valorem (about 1,5 today) > $0.45 No direct shipment 0.50 ~ $0.45 ~ 0.50 Rotterdam cif (T1): $0.43/l ( 0.33/l) + 0,192/l duty = 0.51/l (ethanol price in the EU is largely determined by the exports from Brazil) Rotterdam fob inc. duty: 0.51/l Source: Argus Biofuels, Argus Media Ltd

9 When are cereal and petroleum prices correlated? Example: May July, 2008 High petroleum price (Brent crude: $ /m3; $ /b) High ethanol price (FOB Rotterdam: $ /m3) Higher cereal price (LIFFE feed wheat: $ /t; MATIF corn: $ /t) Profitable ethanol blending margin Ethanol use in excess of mandate (could have happened with crude oil prices over $ /b for longer term) Increased cereal use for ethanol production

10 When are oilseed and petroleum prices correlated? Example: May July, 2008 High petroleum price (Brent crude: $ /m3; $ /b) High biodiesel price (Germany, ex-plant 1,050-1,120/m3) Higher rapeseed oil price (Germany, ex mill: 972-1,000/t) Biodiesel blending margin was not profitable (not even at high petroleum prices) Biodiesel use was not in excess of mandate (could have happened with crude oil prices over $200/b but not with prices of $ /b) Increased rapeseed use for biodiesel production due to national targets/mandates

11 The Renewable Energy Directive (RED) in the EU Sets of mandatory national targets for renewable energy shares, including at least 10% renewable energy in transport (at least 10% renewable energy at least 10% biofuel; electric cars included) Requires a renewable energy action plan with national targets Creates sustainability criteria for biofuels GHG savings biofuels will need to save at least 35% of GHG emissions compared to fossil fuels (50 or 60% from 2017) Land use no raw material from primary (undisturbed) forests, biodiverse grassland, wetland and peat land cross-compliance rules for raw materials cultivated in the EU land used for growing energy crops will obtain a GHG saving bonus Social standard ratification and implementation 8 ILO conventions (also apply to EU coutries) Certification (verification) and calculation Proof of sustainability: reliable auditing (certification scheme based on mass balance system) Inclusion of the indirect land use change (ILUC) effect into the GHG calculation method Emissions from carbon stock changes caused by ILUC based on scientific evidence (decision on proposals until 2012) Certification schemes (inc. GHG savings) approved by the European Commission have legal value Supporting advanced biofuels Biofuels produced from wastes, reisdues, non-food cellulosic material, and ligno-cellulosic material considered to be twice of that made by other biofuels (half the volume of advanced biofuels is needed to achive the 10% target) EU biofuels market will experience a major system change Compliance with sustainability criteria will increase the production cost and price of fuel ethanol Biofuels with higher GHG savings may become economically more attractive a higher market price can be achieved

12 Sets of mandatory national targets for renewable energy shares in the EU and Hungary Renewable energy 12% 20% EU Renewable energy in transport 5.75% 10% Hungary Renewable energy 7% 13% Renewable energy in transport 5.,75 10% Source: 77/2001/EK, 2003/30 EK, EU Commisssion (2008)

13 Biofuel margins are currently poor Biofuel production capacity > biofuel production No full capacity utilisation Increasing exports of biofuels to European destinations Currently low oil prices provide no incentive to exceed the present blending rate, not even at low feedstock prices With lower oil prices even at low feedstock prices it is hard to make profit in the biofuel business Memories are likely to be focused on recent history: it will be tough to get investors back Excess supply puts market power in blenders hands A few large buyers and many smaller competing sellers (at EU level) Sales of cars are decreasing increase in demand for biofuel is slowing down But fuel (and biofuel) consumption is decreasing due to financial and economic crisis Banking system is still fragile: confidence has not been restored Impacts of fiscal stimulations are uncertain

14 Food crisis caught the world by suprise A new policy paradigm? From open markets to protectionism From food security to self sufficiency From imports to outsourcing (land acquisition) From private to public market interventions Immediate & short - term policy responses Avoid policy responses that exacerbate the situation Provide humanitarian aid (cash/vouchers) Support to increase agricultural output Review biofuel support policies Medium & longer term policy responses Open up agricultural markets, avoid import and export restrictions Improve the productivity of global agriculture, particularly in developing countries Improve the purchasing power of the poor in developing countries economic growth

15 Some drivers of change are fast-moving, while others are slow Source: International Food Policy Research Institute

16 Food crisis in the future Financial crisis as one of the factors causing food crisis (2008) International trade and commodity futures expanded dramatically leading to a speculative bubble sharply rising food prices Food stocks were low but there was no sign of a major shortage of food Food crisis was a rehearsal to come again World economy is in recession Sharp fall in food prices occurred but agricultural prices are much more stable than prices of other commodities Recession will end and food prices will return to normal trend Food crisis in the future Rising demand (recession will end): demand is inelastic because we do not eat in the long run we eat every day Fluctuation of supply: environmental factors (water scarcity, flood) may lead to supply schocks Food stocks: building stocks takes time Secure demand Physical supply is important otherwise people are scared of not getting the food even if they have the money Risk management risk of access: you can create money by fear but not food Global safety net for food to avoid food crisis with irreversible consequences Environmentally induced crisis in poor countries Migration flow from the South to the North Security challenge for the North

17 Food security: the global outlook Global population growth Increased demand for agricultural products By 2025 global food output must increase by about 75% Food Feed Biomaterials (inc. fuel)

18 The food security problem: challenges Population growth food demand 1.2% a year (70-80 million people a year) Income growth feed demand Asian economic growth 5-6% a year Means more meat & dairy consumption Biofuels expansion industrial demand Land availability Potential in Ukraine, Russia, Latin America Global warming bonuses? Technology uptake Need another green revolution Will GM be it? Incentives for change? You ve got mail on gmo! Economic growth Europe s ban on GMO: it is unnatural but food is not produced for the environment! Climate change Speculation Important to market liquidity But can add to price volatility

19 Energy security???

20 Biofuels impacts Biofuels impacts Feed grains: 65 billion liters of fuel ethanol represents 6% of world production Oilseeds: 13 million tons of biodiesel represents 10% of global vegetable oil production Sugarcane: 30 billion liters of ethanol represents 6% of oilseeds area potentially displaced Market price impacts Assuming no change in aggregate production a reduction in available vegetable oils would increase prices Reduction in feed grain supplies would increase prices Market adjustments Land planted to wheat, rice, and other crops will be switched to oilseeds and feed grains Price increases for oilseeds and feed grains will be lower than without the adjustment Prices for other crops will be higher New land will be brought into production market prices for all crops will increase by a smaller amount

21 More pressure on global markets and local ecosystems to supply food needs The global food system will become even more globalized (with its risks) and trade-offs between food provision and ecosystem quality will emerge Continue to rely on key producing regions and also on key crop and animal varieties to meet our needs Need more reliance on productivity growth, but land will inevitably expand with trade-offs to ecosystem quality Has implications for biodiversity and the environment We can t afford a Fortress World outcome (little cooperation or innovation) we need to allow for technology sharing and relax trade barriers

22 Scenario of the future : 2050 conservatism in OECD Actual Difference Difference Difference Area million km 2 million km 2 million km to to to 2050 Natural areas % -8% -11% Bare natural % -4% -9% Forest managed % 62% 70% Extensive agriculture % -33% -39% Intensive agriculture % 23% 44% Woody biofuels % 437% 626% Cultivated grazing % 2% 9% Artificial surfaces % 0% 0% World Total* % 0% 0% Source : Cost of Policy Inaction, Braat et al., 2008, (OECD, COPI, Table 7.1 )

23 The Economics of Ecosystems and Biodiversity: navigation challenge ahead Natural Capital Can we navigate a complex, threedimensional, economic space Financial / Physical Capital with a simple economic compass? Source: The Economics of Ecosystems and Biodiversity (TEEB); European Commission (2008)

24 Delivery of public goods: problems Targeting of actions Lack of evidence about links between actions and outcomes (cause and effect) Huge spatial heterogeneity (values, threats, feasibility, adoptability) These problems exist at all levels (EU, Member States, regional level) But we are not alone ABC 7:30 Report - September 2008: ABC reporter : Are we winning the war on terror..? Adam Dolnik (Centre for Transnational Crime Prevention): Well, we have not defined our objectives and we have no metrics for measuring success In short, I don t know Positive changes are needed Highly valued environmental outcomes, with high confidence and high cost-effectiveness Emphasises a business approach and value for money Greater willingness to target effort

25 Agriculture must Increase yield and quality of products Restore and maintain the environment Produce affordable food including the needs of the poor and under nourished Produce renewable energy and more bio-based materials

26 Biotechnology in food security Modern biotechnology breeding and genes The future of biotech (inc GM) plants In 2008, 13.3 million GM farmers produced crops on 125 million hectares Increasing adoption of GM by China and India likely to influence the uptake of GM in Asia Gregor Mendel Responsible stewardship and good farming practices will remain critical to the success of GM crops Source: James, ISAAA, 2008

27 New opportunities with oilseeds crops Genetically engineered plant oils Oil for plastics Improved cooking oils Oil for industry & fuel Oil with special pharmaceutical or nutritional traits Specialty nutritional oils Novel industrial oils Oilseeds are the main focus, but can also be achieved with oil palm

28 Kihívások: Next generation második biofuel: generációs challenge technológia and promise for the future Energy supply is How not do the you problem: put low cost biomass in your automobile? - collecting and delivering energy in a usable format is the issue

29 Conclusions Agriculture must increase yields energy More pressure on global markets and local ecosystems to supply food needs Food security will remain top priority Land availability is limited so technology uptake is key With mandates and targets for biofuel use, combined with government incentives to produce biofuel the market will continue to be supply-side oriented, not demand driven Stakeholders focus on their local markets first ( home grown is attractive) Biofuel production is critically dependent on policies in the consuming countries (low blending rates) Potential for trade can only be given by increased demand, but rules for sustainable biofuel production need also to be clarified Specific incentives must stimulate advanced technology both for feedstock and biofuel prodution

30 QUESTIONS? THANK YOU FOR YOUR ATTENTION!