In the first decade of the 21^st century, global production of ethanol and biodiesel increased nearly tenfold. If that trend continues, says Rosamond L. Naylor, director of Stanford University’s Center on Food Security and the Environment, national biofuels policies will have an increasingly powerful impact on food prices, food security, energy security, and rural incomes in the developing world.

During a two-hour symposium held on the Stanford campus last Wednesday, Naylor addressed the role of biofuels in global food price volatility and the implications of biofuels development in rural Africa and Asia. Although she acknowledged that global income and population growth have contributed to increased demand for biofuels, she also emphasized “the unbelievable dominance of policy” in driving current trends.

“The main part of this that I think is so significant is the use of mandates,” Naylor said. “Policies such as the United States’ Renewable Fuels Standard (RFS), which sets a national target of using 15 billion gallons of corn-based ethanol per year by 2015, have reshaped price and supply dynamics in both food and fuel markets. “

“When you think about the fact that the US provides half of the world’s corn…the fact that we’re using so much in our gas tanks, biofuels really is changing the nature of global markets,” Naylor said. Policies that fix demand for corn from the ethanol market, she explained, have a destabilizing effect on corn prices, especially in the face of supply shortages.

“When you have mandates you have a quantity that you’re absolutely insisting you use, regardless of the price,” she said. “That inelastic demand leads to more volatile prices with supply shocks.”

Because of the substitutability of basic food commodities, Naylor said, price volatility in the corn market has far-reaching consequences. “Prices of corn ripple through all of the world food economy markets…it affects the demand and supply of wheat and rice and soy, and other things,” she explained. And for poor households in the developing world, she said, “it has big income effects…when you’re spending 70 to 80 percent of your budget on food, you’re going to be hurt the most.”

However, Naylor also noted that biofuel mandates in the developed world could provide valuable market opportunities for developing-country farmers.

In rural Africa and Asia, she said, farmers “see the US having a big mandate, EU having a big mandate, and they think, can they supply into that mandated need?”

For now, it seems, the answer is “maybe.” In Africa, for example, efforts are underway to increase the use of jatropha – an inedible, drought-resistant shrub – as a biofuel feedstock. But Naylor said that low yields and high labor costs are likely to severely limit the economic returns from jatropha-based biofuels.

And in marginal growing conditions, the use of more conventional feedstocks is often restricted by resource availability. In India, for example, where almost all sugarcane is grown under irrigated conditions, expansion of sugarcane area to supply the ethanol market could lead to water shortages. Even if these countries can make large-scale biofuel production economically viable, the benefits to poor farmers could vary widely depending on the structure of the market.

“The implications of biofuel development are going to be quite different,” Naylor said, “depending on the organization of the value chain.”

Dr. Siwa Msangi, a Senior Research Fellow with the International Food Policy Research Institute, agreed. In comments following Naylor’s presentation, Msangi said biofuel development contributes most effectively to rural income growth “when you can have vertical integration…people all along the value chain have to be making money.”

Msangi also noted that commodity price increases, including those driven by ethanol mandates, could benefit small farmers if they are controlled and predictable. “Sharp, fast, sudden price rises – those are the ones that are bad for consumers,” he explained. But prices rises “can be positive…especially if those price rises can be gradual and sustained over time, because that gives people the opportunity to mobilize resources to make use of higher returns.” For example, small farmers at the local or national level can increase their production of crops in high demand for biofuel production.

The emerging connections between agriculture and energy markets are complex, Msangi said, but can be advantageous if handled carefully. “If there are good opportunities for agribusiness, I think there’s a case for taking them,” he said, “but also for being aware of the context and all the issues.”

This was the eighth talk in FSE’s Global Food Policy and Food Security Symposium Series. 

When it comes to climate change and its impacts on agriculture, we may know less than we think.

But according to David Lobell, Assistant Professor in Stanford’s Department of Environmental Earth System Science, acknowledging the gaps in our understanding could help us to more effectively prepare the world’s food system for a warmer future.

Lobell, who has built an impressive career around the study of climate change and its implications for global food security, addressed the topic of agricultural adaptation during a two-hour symposium held on the Stanford campus in early December. His presentation summarized the strengths and weaknesses of climate models in the context of global agriculture, and suggested broad strategies for preparing agriculture for climate change’s inevitable impacts.

Lobell began his talk by reaffirming some common beliefs. The Earth as a whole is unquestionably warming, he said. Precipitation intensity is increasing in high-rainfall areas, and the world’s driest regions are becoming drier.

“Think about the hottest day we currently experience in a 20-year period,” Lobell told listeners. “By mid-century, we’ll be seeing that hottest day every year, as opposed to every 20 years.” During the same period, soil moisture content in many of the world’s major agricultural areas will decrease by as much as 10 to 15 percent, while annual precipitation at the equator and high latitudes will increase by several inches per year.

At the global scale, Lobell said, climate change will have a net negative impact on existing agricultural systems. The world’s rainfed farms will become increasingly vulnerable to heat and water stress.  Growing ranges and seasons for heat-intolerant crops, such as wheat and sorghum, will contract. Although the high latitudes may see some gains from warmer temperatures and CO2 fertilization of certain crops, low-latitude regions – including South Asia and much of Africa – will suffer disproportionate yield losses as temperatures rise.

However, Lobell said that impacts aimed at local and national scales, as opposed to broad regions or the world as a whole, are much more difficult to predict. A moderate change in average rainfall across a continent could translate to drastic increases or decreases in individual countries. For example, while climate models suggest that Africa’s annual rainfall will change by less than 10 percent over the next 50 years, model projections show rainfall in the nation of Sengal changing by anywhere from five to 40 percent over the same period.

Additionally, Lobell said, forecasts of increasing climate variability are frequently overstated. “The number one misperception I hear is that climate change is going to mean more variability,” he noted.  In fact, model projections of year-to-year variability in temperature and precipitation cover a wide range. Some models do show large increases in variability over the next century – but others show a slight decrease.

Because we understand climate impacts best at the long-term and global scales, Lobell said, global responses that address long-term trends are the most likely to serve our future needs. He cautioned against approaches that prepare farmers for short-term variability, such as sudden floods or droughts, but fail to acknowledging the effects of steadily rising average temperatures. He also stressed the value of globally coordinated efforts, particularly those aimed at developing better heat and drought-tolerant crop varieties, to supplement local infrastructure projects.

 “We’re in a world where local resilience depends on global systems,” Lobell noted. He said that the interconnectedness of modern global food markets makes global trends, and global responses, increasingly relevant for local food security.

At both local and global levels, an effective response to climate change will require robust social institutions. Dr. Fatima Denton, Program Leader for Climate Change Adaptation in Africa for the Consultative Group on International Agricultural research, stressed this point in her comments on Lobell’s presentation. “Climate change has really unmasked our governance challenges and the weaknesses in our institutions,” Denton said. “This is not just about biophysical processes…it’s about the development pathways that we choose.”

Lobell agreed. Climate change, he said, presents “an important opportunity for transformation.” He encouraged present and future leaders to think critically about all aspects of the relevant science and policy. “Be skeptical of what you hear,” he advised, “and educate yourself about what we do and don’t know.”

This was the sixth talk in FSE's Global Food Policy and Food Security Symposium Series.

U.S. ethanol policy may be the single most significant contributor to world food price instability, states a Stanford study on the global costs of American ethanol. The rapid rise of biofuels has tied energy and agricultural markets together, making it difficult to assess one without understanding the other.

The price of corn recently hit an all time high, a departure from a long-term trend that has seen the cost of corn decline with each passing decade. Price spikes have happened before, and some experts viewed the latest jump as part of this familiar cycle. Stanford food policy economists Rosamond L. Naylor and Walter P. Falcon alternatively argue in a new paper released in The American Interest that we have entered a new era where agricultural commodity prices are increasingly driven by U.S. biofuel policies. This food and fuel linkage has, and will continue to have, major implications for global food prices and the world’s poor.

Over the last decade, the U.S. ethanol industry experienced a major increase in production and consumption as a result of beneficiary of tax breaks, tariffs and government mandates. In 2005, MTBE was phased out as a gasoline additive because of environmental and health risks, and ethanol became the preferred MTBE substitute. Production was further supported with a mandate to reach a minimum target of 15 billion gallons by 2015. 

A jump in the price of crude oil gave a further boost to ethanol as a potential replacement for petroleum. As a result, 40% of the U.S. corn crop is now devoted to ethanol production. These policies have been promoted under the banner of protecting the American farm industry, securing energy independence, and decreasing greenhouse gas emissions, and they have succeeded on a number of these fronts.

However, as a major global producer and exporter of corn, the rapid rise of ethanol production in the U.S. during such a short period of time has produced a fundamental change in the structure of demand for corn. Increased demand has led to higher and more volatile food prices, not only for corn but other agricultural commodities. If the United States, along with the rest of the G-20, is serious about stabilizing global food prices, U.S. domestic biofuels policy in its entirety will need to be re-examined.

High prices are a boon to the U.S. farm sector, but can be devastating for poor consumers with minimal income to spend on food. Food riots have broken out in several countries suggesting the new volatility in the price of staple crops has had a severe impact on developing economies. Where once the policies of the U.S. helped keep agricultural prices on an even keel, current support for the production of corn-based ethanol has reversed this stabilizing role. 

Given the bullish financial outlook for the U.S. agricultural sector, this is an ideal time to begin dismantling both ethanol and corn (and other major commodity) subsidies. Corn-based ethanol tax and tariff provisions together cost the federal government around $6 billion annually. Cutting these subsidies would help reduce the Federal budget deficit without harming the rural economy.

The trickier political and economic questions relate to reassessing mandates, and are likely off the table with the 2012 elections approaching. This is unfortunate, for these policies will continue to cause unrest in food markets far beyond American shores.

Trade-offs between food and biofuels:

Biomass supply and demand:

Biofuels, land-use, and economic transition:

Biofuels, food prices, and the poor:

Climate and crops, diversification and irrigation: