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Biofuels and poverty reduction: Is there a way through the maize?

Date
Time (GMT +01) 12:00 13:30

Speakers:
Rachel Slater, Research Fellow, Rural Policy and Governance Group (RPGG), ODI
Joy Clancy, Associate Professor in Technology Transfer, University of Twente, Netherlands

Chair:
Chris Stevens, Director of Programmes and Research Fellow, International Economic Development Group (IEDG), ODI

Chris Stevens, in the chair, opened the event with an overview of ODI’s work on climate change and its recent work on biofuels and poverty reduction.


Rachel Slater – Biofuels, agriculture and poverty reduction


Rachel Slater opened with an overview of global biofuels production trends. She outlined arguments made by both optimists and pessimists about the potential of biofuels to simultaneously address the three challenges of climate change, energy security and poverty reduction.

She then outlined some of the macroeconomic aspects of biofuels, and some of the many caveats that exist because circumstances are constantly changing. For example, due to changes in environmental pricing and emerging policies on climate change mitigation. Broadly speaking, the effects will be to increase the incomes of producers and producer countries (and countries in net surplus) and to decrease the incomes of consumers (and countries that are net importers).

She emphasized that understanding the relationships between biofuels and poverty is hazardous because it is hard to make generalizations across countries; different feedstocks have different effects; existing infrastructure can influence the success of biofuels initiatives; and patterns of land holding are different both between and within countries.

She summarised four things that can be said with certainty about biofuels and poverty:

1. High importance of economies of scale which can tend to favour larger producers and land concentration
2. Feedstocks constitute the largest cost, which could favour the selection of certain crops that offer economies of scale
3. They can be complimentary to other agricultural systems and production processes, which could result in linkages and multipliers
4. Biofuels generally require a significant labour force, but the effects on poverty will depend on what type of labour force is required (i.e. skilled/unskilled)

She highlighted insights from ODI’s recent research on three key questions surrounding the biofuels and food security debate:

1. Arguments that land taken away from food production to be used in biofuels production can be underlain by ‘spin’ in the media. Care is needed in extrapolating projections based on experience in developed countries to developing countries. There is also a current lack of evidence that land is being taken up for biofuels production.

2. Impacts on food prices: She highlighted the need to be careful in unpicking other effects on food prices, such as the relationship of international prices to national prices and price comparisons (e.g. between white and yellow maize).

3. Aid impacts: She commented that biofuels impacts on food aid relate to food surpluses in the US and there could be one of two outcomes which are currently unclear: (1) less aid from the US or (2) a conversion of food aid to monetary aid.

Rachel concluded with three key points:

1. Context is critical in understanding relationships between biofuels and poverty reduction.
2. That many of the issues are not new for agriculture and biofuels might just be another form of cash crop.
3. She suggested that the profile of the agenda could be used to further much needed policy reform in agriculture.


Joy Clancy

Joy Clancy began her presentation by outlining who the rural poor are and their basic needs, including: food, water, fuel, fodder, income generation, food security, local environmental protection and social services. All of these issues have an energy dimension.

She posed the question of whether liquid biofuels help these people by providing transport fuels and driving stationary engines. Their energy needs include: process heat, lighting, irrigation and drinking water, milling, storage and transport. She emphasised that milling is especially important because it can free up womens' time. But she also stressed that energy does not equal development, so biofuels cannot be an end in themselves.

Large-scale biofuels can however, have a role in providing income for the poor. She presented figures from the state of Sao Paulo, Brazil which is one of the most efficient production areas in the world. One million tonnes of sugar cane creates approx 2200 direct jobs and 660 indirect jobs, but the number of jobs nationally has declined dramatically since the 1980s, meaning that employment is low. The quality of jobs is also very low and there has been considerable internal migration due to the seasonality of labour requirements relating to biofuels.

She drew links between possible environmental threats caused by biofuels and poverty reduction. New plants and estates can result in reduced biodiversity which can put women especially at a disadvantage because of a loss of natural ingredients used for a range of other products. Amounts of fodder can also be affected, especially in ethanol plants, which often use molasses to increase efficiency.

She concluded by highlighting four aspects of the relationship of biofuels to poverty:

1. Basic needs could be met if biofuels were used for local electricity production, but care would have to be taken over fodder.
2. Biofuels have the potential to reduce drudgery and increase food security.
3. Local environmental protection is the biggest worry, because to be ensured, this needs very good planning and enforcement.
4. Biofuels can increase income generation but are not the complete answer to rural employment problems.

She summarised three areas where the potential of biofuels to address poverty reduction could be improved:

1. A more integrated approach to biofuels should be taken which would include liquid biofuels, biogas and agricultural residues.
2. Adopting a demand-side perspective to energy planning is extremely important.
3. ‘Fair trade’ biofuels could be developed to improve their performance.


Discussion

Comments and questions raised in the discussion are summarised below, arranged by theme.

Environmental issues
• Water usage by sugar farms - factories can use a lot of water but there are also cases where there is plentiful water. Irrigation can increase productivity surrounding plantations.

Employment and labour
• Seasonability of labour is a huge problem. All development programmes try to deal with this issue for other commodities. For biofuels the issue is mainly processing and storage. There are suggestions that new types of processing technology might get over the storage problem. In Brazilian case, cassava was origininally considered as a feedstock, but turned out to be a disaster for small farmers. Seasonality could also create conflict within families as men return.
• Employment – lots of the figures in the presentation were on employment in bioethanol but biodiesel is much more promising as a source of employment. Why is there so little on biodiesel? Brazil is often quoted because it is one of the few places that has long term experience and is well documented, but we have to be wary because the figures are often distorted – employment in the biofuels industry has changed a lot since the 1970s.
• Biofuels production in Malawi is not concentrated on maize, it is former tobacco farmers with degraded land. The South African biofuels strategy is likely to have a big impact on biofuels production in the entire region.

Standards
• Standards will ensure that there are no environmentally damaging imports from developing countries. But the main issue is how we prevent environmental standards from restricting access to European markets for biofuels. This is a wider question that applies to all environmental standards.
• The classification of biofuels by the WTO as environmental, agricultural or industrial products could affect the standards that could be applied under WTO rules.

Jatropha
• Jatropha has been suggested as a potential biofuel crop but there are big concerns. Experience in Indonesia indicates that large prices have been promised and people have been persuaded to grow the crop. However, there is only one potential buyer, who has not constructed a plant. Jatropha is not a ‘miracle’ crop but there could be circumstances where it could be appropriate. Jatropha also has other uses such as live fencing

Price instability related to biofuels
• If agricultural prices are increasingly linked to energy prices then impacts on food security will also be more volatility in the markets. World prices usually account for less than 25% for any variation at country level. It is currently hard to model effect of biofuels.

Macroeconomics
• Macroeconomic impacts depend on factors such as future energy prices, and level and form of subsidies. Broader impacts of climate change might have a much larger impact than biofuels in southern Africa.
• If demand for biofuels increases solely because of oil price this will be bad for oil importing countries. To tell developing countries not to produce for demand for other reasons is then not good. If it’s because of other factors, such as developed countries to meet carbon offset targets, then there could be serious problems for food security because there will be an artificial diversion of production away from food, not to deal with energy problem but to deal with difficulties of governments in the EU and US.

Microeconomics
• There are many factories in existence but that are looking for diversification. Biofuels offer opportunities for these factories but the multi-purpose nature of many oil crops (e.g. switching between potable and non-potable alcohol) can be a problem as they respond to market demand which could affect biofuels supply.

Second generation biofuels
• There is need to look into the opportunities from second generation biofuels, but they are currently technology-heavy and expensive and therefore unlikely to benefit the poor.

Energy balances
• More information is needed on the energy balances for biofuels in developing countries. Development co-operation could support this.

Description

Some fairly lofty claims have been made about the role of biofuels in development and poverty reduction. There are arguments that energy crops provide a solution to the twin problems of poverty reduction and climate change, by providing fuels with low greenhouse gas emissions whilst enabling rural job creation and food security, reducing oil imports and improving domestic and regional energy production capacity. But elsewhere there is scepticism, with concerns that biofuels will be a ‘pandora’s box’ of environmental, social and economic issues. The net energy balances for many biofuels are unclear and linkages to poverty reduction, for example through agricultural growth, have been questioned.

At this ODI event, Rachel Slater and Joy Clancy examined current evidence for linkages between biofuels and poverty reduction. They explored the two main areas where links have been made:

  • Biofuels, agriculture and poverty reduction. What do we know about the economic, growth and poverty impacts of biofuels in developing countries? What are the likely implications of increased biofuels production on competition for land, food prices and food aid flows?
  • Biofuels, energy and poverty reduction. What role might biofuels play in helping secure energy access for the poor? How might increased biofuels production affect developing countries’ energy sectors, and how can benefits be ensured?