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Q&A: 'Biofuels Must Include the Poor'

Interview with Ali Mchumo, managing director of the Common Fund for Commodities

ROME, May 30 2008 (IPS) - Biofuels are being criticised for contributing to the rise in commodity prices, but their energy potential can be developed too, on condition "that the poor are part of the production chain."

Ali Mchumo Credit: Charles Jama/CFC

Ali Mchumo Credit: Charles Jama/CFC

This will become possible if governments "look closely at policies to harness this opportunity for rural development," says Ali Mchumo, managing director of the Common Fund for Commodities (CFC). "Wherever the poor have the opportunity to engage in agricultural production, there's a distinct opportunity for them to benefit from high prices for their produce," he told IPS Italy correspondent Sabina Zaccaro.

CFC is an intergovernmental financial institution based in Amsterdam in The Netherlands. Its members include the European Community, the African Union, the East African Community and the Common Market for Eastern and Southern Africa, the Caribbean Community, the Andean Community, and the Southern Africa Development Community. Its mandate is to support commodities production and trade, particularly in developing countries that are commodity dependent.

The UN Food and Agriculture Organisation (FAO) says high food prices have hit vulnerable populations in many countries that spend a substantial part of their income on food. Its latest food outlook indicates that the food import bill of the Low Income Food Deficit Countries is expected to reach 169 billion dollars in 2008, 40 percent more than in 2007. The report says that by the end of 2008 the annual food import basket of most vulnerable countries could cost four times as much as in 2000.

IPS: Many experts have voiced concern about biofuels' contribution to rising food prices, arguing that these respond to rich countries' energy demand rather than to feed people in the South.

Ali Mchumo: Rising food prices are primarily a symptom of insufficient production capacity to meet the demand. On the supply side, this is mainly due to limited investments in agriculture in developing, and especially African countries; and on the demand side, the phenomenal increase in demand by the huge markets such as China, whose consumption patterns have greatly increased.

Of course, the new market for biofuels is stimulating global demand for agricultural products, but the current and future effect on food prices depends principally on feedstocks used in emerging biofuels technologies.

The biofuels sector is still undergoing rapid development, and most of the effects we see at the moment are likely to recede in the longer term. Furthermore, rising oil prices not only spill into rising prices for food products; they also stimulate more research and development for alternative, non-edible feedstocks, where the biofuels sector could face less stringent resistance.

As a matter of policy, one should be vigilant about fundamental trends in the biofuels sector having any persistent negative factors affecting food markets.

IPS: Commodity dependent developing countries constitute the majority of the Common Fund's membership. What threats does bioenergy pose to these countries?

AM: We find that for commodity dependent developing countries (CDDCs) it is better to view the biofuels-energy issue not as a threat but as the emergence of new opportunities and challenges.

The Common Fund believes that balancing the opportunities and challenges in the context of national interests is the essential element in any sound policy response to the rising importance of biofuels and bioenergy.

The balance considerations may include diversification, environmental sustainability, rural development, food security, better utilisation of marginal lands for increased commodity production, and reduced dependence on fossil fuels.

IPS: The Common Fund has recently released a study analysing biofuels policies and strategies that should be adopted to diversify the agri-sector. What is the main outcome of this study?

AM: The key point of agreement in the report was that the fundamental goal of biofuels development, in the context of commodity dependent developing countries, was to promote the link between poverty reduction and the development of the biofuels sector.

Secondly, the report cites the following factors: flexibility, country specificity, and pro-poor orientation in the development of national biofuels policies.

More significantly, the study contains a Decision Tree identifying the core policy goals and substantive factors to be considered in formulating a broader national development strategy for biofuels development. The Decision Tree identified four broad goals for biofuels development policy, namely energy security, rural development, export development and climate change mitigation.

IPS: What factors should policymakers consider to make these policies viable?

AM: They should give due consideration to critical factors such as feedstock choice, food security, the environment, social acceptability, economic effectiveness and market competitiveness.

IPS: What policies could protect the poor from the pressures created by the growth of the biofuels markets?

AM: The policy measures are laid out in the study's Decision Tree for strategic national choices on biofuels development. The graphic representation covers all the major areas, and is a kind of road map for national policymakers. Essentially, what we have here is a cost-benefit analysis, mapped out across the lifecycle of biofuels.

Obviously, we expect each country to take into account all factors when formulating or implementing policy that are unique to each given member country.

IPS: Large-scale investment in biofuels is primarily the prerogative of the private sector. How can we limit the risk that big corporations take advantage of the food crisis at the expense of poor countries, as experts say is happening with rice?

AM: What is happening with the food crisis may be evidence that there is a breakdown in the global agricultural market. To address the problem will require a review of current support measures that curtail the economic competitiveness of developing countries in the open market.

In the case of rice, which reportedly has risen in price by 85 percent, there are indications that many producing countries are restricting exports, and thus contributing directly to the uncertainty and chaos over food shortages in many food-importing countries.

IPS: What is the long-term solution beyond emergency food aid?

AM: The surge in food prices has created rising uncertainties about global food security and food accessibility.

Climate change, environmental degradation, high transaction costs arising from spiralling energy costs, high input expenses, and diversion of grains to the biofuels sector are some of the important factors responsible for this adverse and alarming development.

Our position is that the major long-term underlying factor has been a combination of neglect of investment in agriculture, as well as a consequence of the impact of subsidies and domestic support measures, which have been disincentives for food production in developing countries. No one can argue any more that these measures have any redeeming social or economic value.

We deem it regrettable that in the past developing countries had been advised to leave agriculture to the exigencies of the market, which resulted in neglecting investment in agriculture.

IPS: Have you undertaken any action to address this situation?

AM: We've attempted to redress this situation by focusing public attention on this issue. The Common Fund and three leading international partner organisations launched the Global Initiative on Commodities (GIC) at a major conference held in Brasilia last year. Among the main policy issues deliberated on at the meeting were trade-related infrastructure, lack of finance for investment, and diversification.

As the UN Secretary General Ban Ki-Moon said recently, unless there is forthright action on a 'global commodity agenda for development', we may not be able to endure the precarious nature of protracted food supply deficits if current trends are not reversed.

Promoting sustainable agricultural production and productivity, particularly the productivity of food staples, is the central element in economic growth that determines the price of food, wage costs, and competitiveness of all major commodity sectors.

Obviously, to achieve higher agricultural productivity in developing countries requires among other things, more financial investment in agriculture, nationally and internationally, including enhancing the financial capacity of commodity related organisations.

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