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ENERGY-CHINA: Biofuels Eating Into Food Grain Stocks

Antoaneta Bezlova

BEIJING, Dec 20 2006 (IPS) - China’s biofuel industry is booming thanks to voracious demand for energy to power the country’s high-flying economy.
But worried over surging crop prices China is now clamping down on the use of corn and other edible grains for producing biofuel. While it wants to support the growth of alternative energy sources, Beijing says the issue of national food security should take precedence over the country’s green agenda.

China’s biofuel industry is booming thanks to voracious demand for energy to power the country’s high-flying economy. Applying modernised versions of ancient chemical processes to convert crops and oils into energy sources, Chinese entrepreneurs have created a profitable “green business” with plenty of room to grow.

But worried over surging crop prices China is now clamping down on the use of corn and other edible grains for producing biofuel. While it wants to support the growth of alternative energy sources, Beijing says the issue of national food security should take precedence over the country’s green agenda.

“In China the first thing is to provide food for its 1.3 billion people, and after that, we will support biofuel production,” the state-run newspaper People’s Daily quoted Wang Xiaobing, an official at the Agriculture Ministry ‘s crops cultivation department as saying this week.

China has been encouraging the production of biofuel such as ethanol and methane from renewable resources to reduce the country’s growing dependence on imported oil. Once an exporter, China now imports at least 43 percent of its oil supply.

Biofuel is also seen as environmentally friendly substitute to polluting oil. Chinese economic planners have made the development of green energies, like ethanol fuel and biodiesel, a key priority in the country’s five-year economic plan. By 2020 they want green energies to account for 15 percent of all transportation fuels.

Yet surging demand for biofuel is now partly blamed for recent price hikes in the food market and for shortages in grain stocks. Wheat prices are at their highest level in a decade, due to poor harvests in key producing countries like the United States and Australia, while corn prices have surged by up to 20 percent in local markets.

Beijing has begun auctioning some of its wheat reserves to halt the rise in crops prices and prevent panic among the public. Despite predictions that this year would see another bumper harvest, Chinese government officials feel compelled to restrict the use of corn for producing biofuel.

“We have a principle with biofuel: it should neither impact the people’s grain consumption, nor should it compete with grain crops for cultivated land,” the People’s Daily quoted Yang Jian, director of the development planning department under the Agriculture Ministry, as saying.

Government officials estimate that corn contributes around three-fourths of the raw material used for making ethanol in China. Output of ethanol fuel is projected at 1.3 million tonnes this year, according to the China Daily. Experts however, say that output from private and public producers this year may reach five million tonnes.

With biofuel demand booming, existing producers have been ramping up production and new players have been entering the market. They made only one million tonnes of ethanol fuel in 2005 but by 2010 China’s ethanol-fuel production may reach as high as 10 million tonnes, local press reports say.

As biofuel is produced from renewable biological resources, what government officials worry is that possible overcapacity may lead to a shortage of edible grains and feedstock supplies. This has already happened with cornstalk used in ethanol production. Cornstalk prices in China have jumped 500 percent to 30 US dollars per tonne since 2005.

The same is now happening with the corn. Industrial processing in China consumed 23 million tonnes of corn in 2005, an annual increase of 16.5 percent from 2001, while corn production increased at the slower rate of five percent during the same period, according to a circular released this week by the National Development and Reform Commission (NDRC), China’s top economic body.

While rivalry between food and fuel producers for grains is not limited to China, the problem is particularly acute here because of the country’s low per-capita arable land to feed its vast population.

The grain crop is expected to hit a record 490 million tons this year, the third straight year of bumper harvests but Chinese planners are worried that fast-shrinking farming land could affect grain supply in the near future. Arable land is said to have shrunk by 8 million hectares between 1999 and 2005.

“We should never relax our efforts to focus on grain production by ensuring there is enough acreage and improving per-unit output,” Yang Jian was quoted as saying.

Experts warn that if ethanol production continues to be corn-based, China will be forced to import the crop by 2008. Relying on crop imports is a sensitive issue as the government policy supports food self-sufficiency for the sake of national security.

“The excessive growth of corn processing has resulted in scarce feed for livestock and affected the development of animal husbandry. Some main producing areas are even considering importing corn,” said the NDRC circular. It demanded that local producers step up efforts to make ethanol from non-grain sources, such as potato and sweet sorghum.

Chinese producers however, continue to make ethanol from corn because the mass planting of non-grain feedstock as cassava and sorghum has yet to be implemented on a large scale due to the lack of suitable farming technologies.