The Silent Tsunami: Linking the Global Food Crisis to Deforestation and Biofuels?

bridges vol. 17, April 2008 / Feature Article

By Michael Obersteiner & Petr Havlik



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Agriculture is in limbo these days. The biofuels issue makes it onto the front page of many newspapers and magazines. The latest issue of TIME magazine selected the title "The Clean Energy Myth" and decried the problem of politicians and big business pushing for biofuels while ignoring the fact that biofuels are driving up food prices, contributing to the destruction of tropical rain forests, and making global warming worse. Food riots are breaking out in many parts of the world. In Haiti the president had to hide in his palace, protected by his presidential guards and United Nations Peace Keeping Forces. The Malaysian government was overthrown by food rioters. In Egypt the army was commanded to produce bread, Bangladesh is in turmoil, and even China is getting worried despite its policy of 95 percent food self-sufficiency and substantial food reserves piled up for 2008.


{access view=guest}Access to the full article is free, but requires you to register. Registration is simple and quick – all we need is your name and a valid e-mail address. We appreciate your interest in bridges.{/access} {access view=!guest} These food shortages are different from those we observed in the past, where famines were caused by local crop shortages or wars. This time, according to the words of the World Food Program, it is a "Silent Tsunami." A wave of food price inflation is moving through the world. For the 1 billion people who live on $1 per day, food price inflation hits especially hard. Now with food prices soaring, at least an additional 100 million people are forced back to this level.
 
Several factors are frequently cited to account for prevailing high food prices. Consumer behavior has changed in the fast growing emerging economies. Vegetarianism in India and China is fading, as they are adjusting their eating habits towards more meat-based diets. Consumers in the OECD have not reacted to higher food prices as they did in the 60s and 70s by reducing meat consumption. Meat production consumes roughly one-half of the total global grain output, suggesting that the persistence of the unhealthy protein-rich eating habits of the global wealthy is one of the main contributors to the current food crisis. The crop shortages in Australia in 2007 and two decades of drastically declining yield growth in agricultural production were not buffered by more flexible consumption by the global consumers, and have led to hunger-driven civil strife. A number of changes in the policies governing the global agricultural sector contributed to the production of the silent tsunami. WTO agreements led to substantial decrease in food storages world wide, with as little as 12 weeks worth of global supplies stored at the beginning of 2008. Trade and openness are at risk of being further undermined given the current crisis. Morocco, Egypt, Mexico, and China have put restraints on domestic prices. A dozen countries, including India, Vietnam, and Ukraine, have imposed export taxes or limited exports. Argentina and Russia have done both. Global capital heavily shaken by the sub-prime crisis has found new growth areas - the commodity markets. Analysts of agricultural commodity markets report a massive influx of speculative capital contributing to additional seismic shaking that augments the tsunamis' waves. Finally, many believe that the emergence of new energy policies has contributed substantially to the current food crisis and the degradation of pristine tropical forests.

Fuel vs. forest / fuel vs. food?
Recently, this assertion has been cited without reflection in the media and by many experts. However, at least on the global scale, the assumption must be refuted given the small share of biofuels in the global agricultural market. Take the example of biodiesel from palm oil: 95 percent of all palm oil is used mainly by the pharmaceutical industry, and only the remaining 5 percent is used by the energy industry.

A good example from the past is corn. Due to trade liberalization under NAFTA, Mexican corn producers could barely compete with substantially better-capitalized and subsidized American farmers. Many Mexican farmers went out of business, leading to a situation where idle agricultural land was not put into production because of more competitive imports. When the United States decided to introduce an aggressive corn ethanol program in response to energy security concerns, analysts predicted regional price increases for corn. Mexico did not prepare, and was unable to deploy its land resources for increased domestic production. The so-called Tortilla Crisis emerged at a time when macro-economic inflation coincided with "agflation" (a combination of the words "agriculture" and "inflation"), an increase in the price of food resulting from increased demand from human consumption and/or use as an alternative energy resource, hitting the vulnerable poor especially hard.

But apart from such regional effects, the American corn ethanol program had little effect on global corn prices. In fact, on the global scale, corn has seen a much smaller price increase than either wheat or rice. It can be estimated that biofuel policies have contributed considerably less than 10 percent to the increase in agricultural commodity prices. Nonetheless the tortilla crisis of Mexico will be remembered as the beginning of the end of cheap food.

A new food price equilibrium
With good policy, luck, and increased capitalization of global agriculture, we might see a new equilibrium of overall higher food prices. Analysts generally believe that high food prices are here to stay for the next couple of years. Despite the high collateral damage of malnutrition and surging deforestation rates, attaining this new equilibrium is desirable. However, this transition, which we are currently seeing, was not planned and appears to be more costly and painful than was expected.
 
What are the features of this new equilibrium? First of all the general price levels will not return to what we were used to, mainly due to the fact that demand will continue to be strong and subsidies, which put many developing country farmers out of business, will no longer lead to globally lowered prices. The other property of future food commodity markets is less desirable but more certain: Increased volatility in global prices will emerge as a distinctly new feature. Higher prices and high volatility will also be spurred by the fact that land is finite. By first principles, land is a fixed production factor, so that a change in the extent of one type of land use will have an impact on other land uses. Production of biofuels triggers competition over land, which might induce increased rates of deforestation or competition with food production.
 


Land resources modeling "Made in Austria" @ IIASA
At IIASA, the International Institute for Applied Systems Analysis in Laxenburg, Austria [click here for bridges article on IIASA], a land-use model covering both the agricultural and forestry sectors has been developed and applied.

Within the agricultural sector all the major crops are represented, as well as the pertinent management alternatives in terms of fertilization and irrigation. The livestock sector, a major consumer of the calories produced by crops, explicitly covers the main animal categories and the pertinent animal housing systems. Within the forestry sector, the model covers the choice between several forest management strategies differentiated mainly by their rotation period. Management is a key market adaptation strategy, combined with expansion of forest land area through afforestation activities. Both crop yields and mean annual forest harvests are estimated for a wide variety of different management strategies by means of biophysical models. These biophysical models reveal crop yield gaps, i.e., differences between the agronomic  percent. This means that, through improved agricultural production, up to six times more agricultural yield could be produced without increasing land use.

Finally, two biofuel production technologies are taken into account in IIASA's modeling exercises: (1) biofuels based on conventional feedstocks (sugar cane, maize, soybeans, and rapeseed), sometimes referred to as biofuels of the first generation (ethanol and biodiesel); and (2) biofuels based on woody feedstock, representing the second generation technologies assuming gasification technologies. Optimization occurs in the model through maximizing the market surplus under technological and resource constraints. The modeling is capable of endogenously computing prices and international trade flows for 11 world regions.  
 
The modeling results show that strong competition between traditional forests and biofuel production can be expected in the years to come. In 2030 scenarios based on policies of no avoided deforestation and 10 percent fossil fuel substitution by ethanol, some additional 250 million acres of forest would disappear due to agricultural land expansion. Similar areas of traditional forests would be converted to short rotation forest plantations if second generation technologies were applied. Yet, second generation appears to be preferable with respect to irrigation water consumption, total greenhouse gas balance, and food security in the least-developed countries.

Under scenarios in which deforestation is avoided, we find that a carbon tax of US$50 per ton of CO2 would be necessary to prevent the deforestation induced by biofuel expansion. However, an isolated deforestation avoidance policy would not be free of collateral damage. Results show that avoiding deforestation would further exacerbate the negative effects of biofuel expansion on food security and consumption of irrigation water.
 
Conclusions for policy makers
A number of policy conclusions can be drawn from this analysis. The transition to the new equilibrium seems to be unavoidable and at the same time desirable.

Policies should, thus, focus on relieving some of the pain during the transition period rather than countering the process per se through protectionism and inflexible energy policies.

Governments should resist short-term fixes like those practiced today. Such fixes include imposing quotas and trade restrictions. Global trade will contribute to keeping prices down and dampen the effects of factors leading to price shocks such as large-scale droughts.

Trade appears to be one of the key measures for adapting to the impacts of climate change on agricultural production and on global food security. The desirability of the new equilibrium is defined through the prospect or a more vital and robust agricultural sector in the developing world. A precondition to such development prospects is that science, technology, and education can be deployed as allies to boost rural economies in developing countries.

A second green revolution, triggered by these three factors, will only come about if countries work together and are open to institutional reform and innovation in the respective nations, as well as internationally.

Finally, deforestation will certainly be a topic of the 21st century - one that will be persistently debated as a trade-off between the issues linked to ecosystem valuation and food security.

***

The authors, Michael Obersteiner and Petr Havlik, are working in the Forestry Program of IIASA in Laxenburg, Austria.

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