The Hunger Grains: new research shows EU biofuel policies drive food prices and land grabs

Oxfam economic policy adviser Ruth Kelly (right) unveils her new paper, published today, on a really simple, bad policy that rich countries can fix – biofuels.

The past five years have seen two record spikes in the price of food; and prices are rising again, with corn and soy hitting record highs in summer 2012. There is intense disagreement about what causes food price spikes and how to address them, and this often gives rise to confusion and inaction. But, unusually, there is one thing most experts agree on: scrapping biofuel policies would make a real difference. In June 2011, ten international organisations were so convinced of this fact that they made an unprecedented call for G20 governments to scrap biofuel policies. Last week, the European Commission and the French government finally woke up to the fact that it is simply unacceptable to burn food while millions around the world go hungry.

In 2009 EU governments agreed that by 2020 all ground transport fuel sold in the EU would contain about 9 parts biofuel to every 91 parts petrol or diesel. In a new report published in advance of today’s meeting of EU Energy Ministers to discuss renewable energy, Oxfam shows that EU biofuel mandates are inextricably connected to hunger and land grabs in developing countries. Modelling by the UK government suggests that suspending the EU biofuel mandate in 2018 could reduce international price spikes by up to 35 percent. And that is just the impact that is relatively easy to model. A drop in local or regional food production has a much greater impact than international commodity prices on retail prices, especially in regions that are relatively isolated from international markets, like sub-Saharan Africa. As biofuel production displaces local, national and regional food production, not only do people have to buy the food they would otherwise have grown, but there is less for sale; increased demand and reduced supply push up local prices.

The leaked European Commission proposal is welcome in so far as it recognises, for the first time, that EU biofuel mandates exacerbate both climate change and hunger. But, as the proposal stands, it is no solution and could in fact make matters worse. At the moment about 4.5 percent of ground transport fuel used in the EU is made up of biofuels, of which about 90 percent comes from food crops. Not only would the Commission proposal increase that amount to 5 percent, but it would allow biofuel made from non-food crops to make up the difference – which uses up scarce resources of land, water and soil when they should be used to produce much-needed food.

According to Oxfam’s calculations, the land used to produce the biofuels used in the EU in 2008 has the potential to produce enough wheat and maize to feed 127 million people. As the proportion of biofuel in our petrol and diesel rises, so does the amount of land it gobbles up. Most land deals happen in the poorest countries with the weakest protection of people’s land rights, according to the IMF and World Bank; economic regressions show that other variables, like availability of land and ranking on the Doing Business indicators, are simply irrelevant. Affected communities rarely have a say, and women are the least likely to be consulted even though they are often the most seriously affected. The overwhelming consensus from research on the welfare impact of large-scale biofuel production shows that benefits are reaped by a small elite. As research from Indonesia concludes, ‘there are some winners but many losers’.

EU governments have it within their power to make a difference to the lives of millions of hungry people. It is completely unacceptable that we are burning food in our petrol tanks while poor families go hungry and millions are being pushed off their land. Fighting hunger has never been so simple: it’s time to scrap the mandates.

Ruth Kelly is an economic policy adviser for Oxfam

The latest (big) numbers on land grabs, and some powerful case studies

Oxfam adds its voice to the growing clamour about land grabs with two new reports out today. Land and Power: The Growing Scandal Surrounding the New Wave of Investments in Land pulls together some fascinating (and sometimes shocking) case studies from South Sudan, Uganda, Indonesia, Honduras and Guatemala, and adds up some big new global numbers. The New Forests Company and its Uganda Plantations goes into more detail on one of the case studies.

First the big number: the Land Matrix Partnership, a coalition of NGOs, academics and donors, has come up with a ceiling figure of 227m hectares (the size of Western Europe, 10x the UK) for the total area affected over the last 10 years. Big pinch of salt required – finding out exactly how much land has changed hands is incredibly difficult due to the lack of transparency and secrecy that often surrounds the deals. The 227 million figure is based on information on land deals from a whole range of different sources including government reports, academic research, company websites, international finance institutions media reports and the few contracts that are publicly available. My understanding is that this builds on the methodology used by other players like the World Bank, which came up with a 56m hectare figure in 2009, for deals over the 11 months to August 2009.

Due to all the different sources, with different company names and subsidiaries used, and different levels of information provided, there is bound to be some double counting or proposals that never materialised, (but also, no doubt, a bunch of deals we didn’t catch). So we are working through it all and cross-checking the data, but with over 2000 land deals this takes time. We’re up to 67 million hectares so far. I’ll keep you posted on where we get to.…

The case studies each contain different experiences and lessons. In Uganda, over 20,000 people have been evicted, many (and we talked to several hundred of them) claiming it was done violently, to make way for a forestry project of the UK-based New Forests Company.  The evictions were carried out by the government (although locals claimed they recognized NFC employees). NFC is saying the villagers were illegally on the land, they have received no reports of the use of violence, and take refuge in two independent endorsements of one of the plantations – certification by the Forestry Stewardship Council and a field assessment by the World Bank’s International Finance Corporation.

This raises important issues for even the best-intentioned investors – in many developing countries systems of formal and customary law coexist, and both need to be taken seriously – some of those evicted say they have been living on the land for 40 years or more. And the huge edifice constructed around sustainability, climate change and carbon sequestration (in this case involving both the FSC and the Clean Development Mechanism) really needs to be overhauled to make sure that if they are displaced, the people already living on the land exercise their right to Free Prior and Informed Consent (FPIC), get proper compensation, and are found alternative livelihoods. None of that seems to be happening in the case in Uganda.

Palm oil-based biofuels is emerging as a driver of some nasty land grabs, and the Indonesia case looks at the role of a Malaysian/Indonesian joint venture company named PT MAS (subsidiary of palm oil giant Sime Darby), which is alleged to have backtracked on promises of land and investments to displaced communities. We found similar things going on in South Sudan, Honduras and Guatemala (eviction pictured here).

Overall, what emerges is a mess. Dodgy authorities, whether local or national, out for a quick buck; investors all too willing to turn a blind eye and be content with box-ticking and legalistic excuses; land lying idle despite promises to turn into a productive marvel; land tenure systems that are murky and offer little defense to poor communities; legal systems that are inaccessible to poor farmers. But in a few cases, civil society protest and/or action by the authorities seems to be correcting some of the worst excesses, which at least gives grounds for hope.

Agricultural investment can be a real boon to poor farmers, but not if it’s done like this. The balance of power has to be shifted to local communities, who need a much greater say (through FPIC) in what happens to their land. Host country governments need to clean up their act and be much more transparent about the deals being negotiated; the home country governments of the investors need to do more on regulation and disclosure and drop their daft biofuels mandates, which are contributing to the scramble; investors need to stop looking for excuses and follow the example of other sectors such as garments or supermarkets in accepting responsibility for the whole supply chain, not just the bit they directly own (we used to hear these kinds of denials from the shoe and clothing companies ten years ago – not any more).

Public campaigning played a big role in shifting the clothes companies and needs to get behind campaigns on land grabs too. That example does at least offer hope – the land deals are a short-term response, but high prices are probably here to stay, so the more we can do to civilize big agriculture investments  and turn them into drivers of development, rather than misery, the better.

Introducing Growbag, a round up of new research on food, farming and climate by guest blogger Richard King

I can’t keep up with the flood of research on the issues related to the GROW campaign, so my ever-hungry colleague Richard King is riding to the rescue……

This occasional ‘blog series is a nutritionally dense (but non-exhaustive) collection of links, highlighting major recent publications and miscellaneous happenings that are relevant to Oxfam’s GROW campaign.

Like any growbag, this series requires planting and watering (to overextend a shocking pun). Seedlings for inclusion in future posts (along with any suggestions for improvements) can be emailed to research@oxfam.org.uk. Let’s get started:

1. ‘Price volatility and food security’ - UN Committee on World Food Security’s (CFS) High Level Panel of Experts on Food Security and Nutrition (HLPE)

The report considers the causes and solutions to higher food prices and higher levels of food price volatility. It proposes three different explanations for recent international food price increases.

“The first explanation defines food price rises as a problem of agricultural price volatility‘ (implying that high prices will not last) and as a quasi-natural and permanent problem of agricultural markets. The second explanation points to the existence of periodic international food crises (1950s, 1970s, and present) and claims they can be explained by the dynamic of investment in agriculture. The third explanation sees current price increases as an early signal of coming and lasting scarcities on agricultural markets. The report does not choose between these three explanations. Instead, it emphasizes their complementarities. For example, the need for significant public investment in agriculture will be conceived of differently if the third explanation (coming scarcities) is taken into account. The main concern here is that short and medium-term measures should be compatible with and even contribute to resolution of the long-term problems.”

Key policy recommendations to address price volatility and its consequences for food security fall under six objectives:

- Building a food security oriented trading system
- Precautionary regulation of speculation
- International coordination of national storage policies
- Food reserves and the World Food Programme
- Refocusing public investment to achieve long term food security
- Curbing the growth of developed country demand for agricultural products

One aspect of the report that has been widely picked up on is the relative contribution to growing cereal consumption of biofuels and emerging markets’ demand for food. From Triple Crisis:

“…despite continued claims that growing demand for meat in China and India is driving food and feed demand, the growth in demand for cereals, excluding biofuels demand, averaged 1.3% since 2000, only slightly higher than in the 1990s and slower than in the previous three decades. Biofuels demand added half a percentage point to that global demand.”

Thus, one of the report’s more striking recommendations is “Given the major roles played by biofuels in diverting food to energy use, the CFS should demand of governments the abolition of targets on biofuels and the removal of subsidies and tariffs on biofuel production and processing.” 

The similarities with the earlier inter-agency report for the G-20 are striking.

2. ‘Policy Solutions to Agricultural Market Volatility’ - ICTSD
This takes a more pessimistic view of what is doable in the face of price volatility:

“A review of possible options for reducing volatility on international markets shows that none of them is likely to work… The conclusion is as disappointing as it is important. There is no effective way of doing much about price behaviour on world markets for agricultural commodities. These markets will continue to exhibit volatility, including the occasional extreme price spike, and there is no recipe against that malady. The only available policy response, then, is to try and minimize the negative implications of volatility.”

Developing countries, it seems, have more limited options: Trade policies can help shield domestic markets from international volatility, but they can’t target the most vulnerable and they exacerbate international instability. Domestic market interventions are deemed ineffectual, as are national stock policies (though there may be a role for emergency stocks in import dependent countries). Social safety nets can help poor consumers ride out the storm, but they need to be implemented when the sun is still shining, not when the storm is raging.

3. ‘Price formation in financialized commodity markets: The role of information’ – UNCTAD
UNCTAD makes the case for “soft regulation” of financialised commodity markets (increased transparency of both physical commodity stocks, and in financial exchanges and OTC markets; tighter regulation and limits on financial players’ positions). It also suggests considering a financial transaction tax to slow down investors’ activities in financial commodity markets. Why? Because, in the absence of full information, financial traders are like rampaging sheep (above): “Trading decisions are… taken in an environment of considerable uncertainty. In such a situation, it is rational to follow other participants’ trading decisions… In an environment of herd behaviour there are limits to arbitrage. Acting against the majority, even if justified by fundamentals, may result in large losses, often of borrowed money. It may therefore be rational for market participants to ignore their own information and follow the trend.”

4. ‘A Warming Planet Struggles to Feed Itself’ - New York Times
“For nearly two decades, scientists had predicted that climate change would be relatively manageable for agriculture, suggesting that even under worst-case assumptions, it would probably take until 2080 for food prices to double. In part, they were counting on a counterintuitive ace in the hole: that rising carbon dioxide levels, the primary contributor to global warming, would act as a powerful plant fertilizer and offset many of the ill effects of climate change. [the ‘carbon fertilization effect’] Until a few years ago, these assumptions went largely unchallenged. But lately, the destabilization of the food system and the soaring prices have rattled many leading scientists.”

5. ‘Biofuels and Climate Change Mitigation’ - World Bank
“If biofuel mandates and targets currently announced by more than 40 countries around the world are implemented by 2020 using crop feedstocks, and if both forests and pasture lands are used to meet the new land demands for biofuel expansion, this would cause a net increase of greenhouse gas emissions released to the atmosphere until 2043, since the cumulative greenhouse gas emissions released through land-use change would exceed the reduction of emissions due to replacement of gasoline and diesel until then.”

Pretty remarkable finding. However, “if the use of forest lands is avoided by channeling only pasture lands to meet the demand for new lands, a net increase of cumulative greenhouse gas emissions would occur but would cease by 2021, only a year after the assumed full implementation of the mandates and targets.” Better. But this would still require mass-scale livestock intensification and much-improved productivity on remaining pasturelands to prevent second-order, knock-on deforestation by people who would otherwise be using the pasture lands given over to biofuels. And there’s still the small issue of having enough land to feed 9 billion people by mid century…

6. Meanwhile, a report for ICTSD ‘The Impact of US Biofuel Policies on Agricultural Price Levels and Volatility‘ finds that US ethanol subsidies may have artificially inflated maize prices by as much as 17 percent in 2011. 

7. ‘Protein efficiency per unit energy and per unit greenhouse gas emissions: Potential contribution of diet choices to climate change mitigation’ - Food Policy journal
Interesting new paper on the impact of our dietary choices on climate change. Looking at the production and transportation of 84 common animal and vegetable foods to a port in Sweden, it finds “animal-based foods are associated with higher energy use and GHG emissions than plant-based foods, with the exception of vegetables produced in heated greenhouses.”

Importantly, it also considered the nutritional value (in terms of protein) of the foods per unit of energy and GHG emitted. “Whether in terms of energy spent or emissions of GHGs, this study showed that the efficiency of delivering protein… was much higher for plant-based foods than for animal-based. In addition, plant-based protein had the specific attribute of increasing efficiency with increasing protein content of the food. Therefore, strategies aimed at feeding a growing world population and reducing contributions to climate change should include measures to encourage a more vegetarian diet with the focus on consuming vegetable products with high protein content, such as legumes, nuts and grains.”

For further analysis related to this, see the excellent Food Climate Research Network

Living on a spike – how are high food prices actually experienced by people living in poverty?

The G20’s Agriculture Ministers are meeting for the first time today and tomorrow, in Paris, a sign of the rising importance of food security and related issues, following the recent chaos in global food prices (see graph). Oxfam is focussing its lobby efforts on biofuels (in many cases, a bad thing, diverting food to fuel and not even helping reduce carbon emissions) and food reserves (a neglected way to smooth the spikes in prices). The FT curtain raiser says the ministers are divided and set to duck the big challenges on biofuels and export bans, but also covers their efforts to improve data on food stocks - a potentially useful way to reduce price volatility.

Oxfam (or at least some of our research partners) has also done something rather radical. When a shock hits, all the development wonks rush for their models and start calculating the impact on ‘the poor’, based on how many millions slip into poverty when prices rise by X or GDP falls by Y. What’s extraordinary is how seldom researchers think to go and talk to poor people themselves. When you do so, you get answers full of depth and surprise, as we found out in ‘Living on a Spike’, a new report on the impact of the 2011 food price crisis, published today by Oxfam and the Institute of Development Studies. Naomi Hossain and I had a piece in the Guardian yesterday summarizing the findings.

The researchers returned in March 2011 to eight community ‘listening posts’ in Bangladesh, Indonesia, Kenya, and Zambia, that were previously visited in 2009 and 2010, building up an increasingly valuable time series of how food prices and their impact have varied over time. Using focus groups and other participatory techniques, they asked: What has happened to prices and wages since last year? How are people adjusting to these changes? What do people think causes food price volatility, and what do they think should be done about it?

The overall impact of the 2011 food price spike has been to ratchet up inequality, producing a pattern of ‘weak losers and strong winners’. The losers – those already struggling in low-paid, informal sector occupations such as petty trading, street vending, casual construction work, sex work, laundry, portering, and transport – are doing worse. Many have seen stagnant or only slightly raised rates of pay, which have been swallowed up by higher food prices, combined with more erratic access to work or customers. Small-scale farmers and small market and food traders have not generally done well, despite the high price of food. High input costs and the squeeze on people’s purchasing power has meant that profits from growing and selling food remain low for those with least scope to diversify and spread their risk.

These people are clearly worse off than last year. They strongly believe that the government is not on their side in their efforts to eke out a living. Regulations on where people can run their businesses or provide their services, police harassment, and unfavourable new laws mean that making a living has got harder, not easier, for many in this group over the past year.

But some groups – usually those who were already relatively better off – have done better than last year. Commodity producers and export sector workers have largely benefited from the global recovery, as have some people in other occupations linked to these groups.

People are adjusting to high food prices in complex ways. While some people are eating less and going hungry, the more usual pattern is for people to shift to lower quality, more boring food and less diverse diets.

The effects differ greatly by gender: women come under more pressure to provide good meals with less food, and feel the stresses of coping with their children’s hunger most directly. Often women go without. As one labourer from Bangladesh explained, ‘The women make the ultimate sacrifice. They take their food after everyone is done. We have completely forgotten the taste of beef.’

These stresses push women into poorly paid informal sector work, competing among themselves for increasingly inadequate earnings. Men also feel the effects: the food price rises severely undercut their ability to provide for their families, leading to arguments in the household and fuelling alcohol abuse and domestic violence. As one Kenyan woman complained, ‘They come home drunk and even feed on the leftovers for our children.’ In the worst instances, couples split up or look for better-off partners to cope with the tough times.

Talking to people living in poverty reveals just how multi-faceted the impacts of the food price spike are, touching on almost every aspect of life. People are spending less on personal items like clothes and cosmetics, and scaling down their social lives. A rickshaw driver from Bangladesh graphically explained:  ‘With my income, I don’t have any money after buying food, so how can I have the luxury of buying more underwear?’… People can see my ass. And the thing is, as I wear the same underwear for the whole week, people get a bad smell from me. What can I do?’

Government has provided some support, but this has generally failed to protect people from the effects of rising prices. The result of these adjustments is not generally starvation, but an overall increased level of discontent and stress. Poor people are having an even more difficult time getting by.
 
The extent of people’s discontent with the situation becomes clearer when asked about their opinions on the causes of food price rises, and what should be done about them. Few people think international food prices are an important cause; some even dismiss such factors as merely convenient excuses made by their ineffective governments. Governments are held responsible for protecting their people from price spikes, but are generally seen as having failed to do so. There is a belief that governments can act to keep prices low if they want to. In Zambia, for instance, some people credited the imminent elections with putting political pressure on the government to keep staple prices low.

Poor people’s explanations of why governments have generally failed to act on food price rises revolve around two key perceptions: that governments do not care about poor people’s concerns; and that corruption at different levels of the system ensures that prices cannot be controlled – either because market inspectors can be bought off, national politicians owe big businessmen favours for help with election expenses, or cartels are permitted to operate.

Young urban men appear particularly angry about governments’ failure to act. According to one group in Kenya, ‘It is high time Kenya went the way of Egypt way. We need a leadership change!’

With revolutions in the Middle East and other protests against governments in Europe, the stress and discontent fuelled by high food prices merits close attention by the G20 agriculture ministers. Hope they’re listening. 

With three years of visits under the researchers’ belts, we’re keen to keep going back to the communities in the next few years, maybe adding on a few other countries and introducing some quantitative methods to complement the qualitative. I’d be interested in links and references to similar research efforts at this kind of  qualitative longitudinal work on particular issues.

Successful Green Industrial Policy – Brazilian biofuels

The highly polarized debate on the role of industrial policy in development is dominated by discussions of the East Asian tigers, so good to see a discussion from another continent on what makes for successful state intervention – Brazil and biofuels. Here’s the highlights from a recent article by Tarun Khanna of the Harvard Business School and Santiago Mingo of the University of Miami School of Business Administration:

“Brazil’s experience at promoting renewable fuels, beginning in the 1970’s, is directly relevant to today’s polarized views of industrial policy. A 10-year industrial policy program called Pro-álcool was crucial in the development of the industry. Today, Brazil is the world’s most competitive producer of renewable fuels, based primarily on bioethanol. Ethanol accounts for more than 50% of current light-vehicle fuel demand in the country, and Petrobras – Brazil’s energy giant and one of the largest companies in Latin America – expects this share to increase to more than 80% by 2020.

Our research shows that industrial policy was successful in promoting a competitive bioethanol industry in Brazil. A massive stimulus package, prompted by the 1970’s rise in oil prices, gave rise to an entirely new industry. But it would not have worked without the crucial role played by competition.

Brazil was attempting to become energy self-sufficient in a manner similar to modern efforts by other countries. But, as opponents of industrial policy are right to remind us, freebies never lead to a good outcome. The aftermath was the key. As world energy prices collapsed, Brazil fortuitously turned off its subsidy tap, whereupon a brutal Darwinian free-for-all ensued. This competitive rationalization was the key to the policy’s success.

The government did not bail out the underperformers, allowing market forces to restructure the industry during the post-subsidy phase. Certainly, the beneficiaries of Pro-álcool’s subsidies lobbied the state to continue the protective policies even after their usefulness – inducing the development of the industry – had expired. Fortunately, the government was not persuaded.

Brazil’s experience offers three important lessons for nations implementing renewable energy initiatives: (1) government policies must be consistent, simple, and long-lasting, providing assurance to would-be entrepreneurs that they can invest for the long haul; (2) picking winners, the familiar weakness of overenthusiastic bureaucrats, must be kept to a minimum; and (3) the state must have the discipline to dismantle subsidies when the need for them has passed.”

And sugar-based ethanol is also much better at reducing carbon emissions than the corn-based stuff being churned out in the US and elsewhere.

For a somewhat less green energy/industrial policy check out this recent Economist piece on China’s electricity boom.

Is the world running out of water?

Excellent overview of water scarcity in last week’s Economist. Here are a few highlights

‘The overthrow of Madagascar’s president in mid-March was partly caused by water problems—in South Korea. Worried by the difficulties of increasing food supplies in its water-stressed homeland, Daewoo, a South Korean conglomerate, signed a deal to lease no less than half Madagascar’s arable land to grow grain for South Koreans. Widespread anger at the terms of the deal (the island’s people would have received practically nothing) contributed to the president’s unpopularity. One of the new leader’s first acts was to scrap the agreement. Read More …

It’s G8 time again

In Hokkaido, Japan, this week, staff from across Oxfam International will be lobbying governments, talking to the press, and periodically donning the ‘big heads’ – giant replicas of the G8 leaders, which we lug around from conference to conference. Dreaming up stunts for the big heads is one of the more fun bits of summitry, and provides an essential service to TV journalists. There’s nothing visually duller than men in suits sat in front of microphones. Read More …