         
Blog posts by amorelWhat about fossil fuel and food prices?
The debate is still raging as to whether biofuels are driving food prices up (1). The NYTimes reported that poor in the slums of Mumbai were forced to reduce their protein and staple intake due to skyrocketing palm oil prices (2). In fact, most commodity prices (particularly vegetable oils) are up significantly from last year. Biofuel production is considered to be competitive with petroleum production as long as oil prices hover between the US$60-100 /barrel. When this occurs, though, increased demand for biofuel feedstocks (mainly crop-based) drives up those prices, creating a positive feedback loop stifling the industry. Empty biodiesel processing plants are becoming quite a common feature in Malaysia as palm oil prices have jumped by 40% from last year. How much of this rise is solely attributable to the use of crops for biofuels?
Certainly the diversion of the majority of EU's rapeseed production to biofuel, increased competition between farmland cultivating corn vs soybean in the US, poor oilseed harvests in China and Brazil and now the severe floods in Malaysia reducing yields of palm oil are taking their toll on commodity prices. Yet the added pressure from food and fuel demand are only part of this story, with farmers being further squeezed by rising input costs including labour, transport and packaging. Now these findings were presented by a joint study in the US on corn prices by the biofuel and corn industry; so their results should not be too easily generalized to many other commodities. However, some analysis has shown a relationship between rising crude prices and vegetable oils (www.oilworld.biz). Also, increasing demands for higher quality foods like dairy and meats in burgeoning populations like China and India are further driving up feed prices, produced from oilseed meal.
Currently, petroleum prices have been hovering around the $100/barrel market with no relief in sight. BP may be one of the few oil companies actually posting a loss in sales (3) while Shell is making record profits and no doubt Exxon continues to do so. OPEC refuses to increase its production due to their prediction that demand in the US will be stymied by a poor economy and that having pegged the price of oil to the dollar it is artificially low anyway (4). One may feel that the oil producers may not have the public's interest in mind. In fact, a recent McKinsey report states how investments of oil capital has now surpassed investments made by Asia, creating a potentially worrying dynamic in the world economy (5). Clearly the debate about food vs fuel is not solely between biofuel and agricultural commodities.
I definitely recommend a peruse of this Mckinsey report as maybe we can start really considering the implications of our oil dependence. Not only is it impacting the price of our food, transport and power but now those who are "controlling" all of these are making some key investment decisions as well as influencing governments. Finally, this worrying trend should clear up the question of whether we should be looking at really expanding agrofuel/biofuel use that is dependent on fossil fuel inputs. After all the point of creating incentives for alternative fuels is not just about the climate benefits, for many economies it is an opportunity to encourage greater rural development and reduce dependence on fuel imports.
1 http://www.csmonitor.com/2008/0128/p03s03-usec.html?page=1 2 http://www.nytimes.com/2007/01/31/business/worldbusiness/31biofuel.html 3 http://www.guardian.co.uk/business/2008/feb/05/bp.oil2 4 http://edition.cnn.com/2008/BUSINESS/02/01/oil.supplies.ap/index.html 5 http://www.mckinseyquarterly.com/article_abstract_visitor.aspx?ar=2093&l2=5&l3=2&srid=27
Biofuels in the news
So for those following, or even if you haven't been, it has been hard to ignore thebarrage of biofuels news reports of late. Perhaps the most notable was the EU finally(!) reconsidering its Biofuels Policy, which would require 10 percent of transport fuel to be renewable by 2020. By far the most problematic aspect of this policy was the question of where this biofuel was to be sourced from. While the EU did provide blanket incentives for growing domestic biofuel crops, namely rapeseed, these were often the cheapest or most readily available feedstocks; not necessarily the most environmentally benign. Also, without an attempt to actually reduce the amount of transport fuel being used, keeping up with a percentage of fuel by 2020 would assuredly require signficant biofuel imports (most likely from Brazil and Southeast Asia).
Now the EU looks set to reduce these incentives and allowing targets to be missed after statements from both the DG Environment Minister Dimas and EU Science and Research Commissioner Janez Potocnik. The latter at least recognizing that not all biofuels are created equally by saying, "the environmental performance of biofuels depends very much on different production pathways. If produced and used sensibly biomass used for fuel can reduce erosion, stabilise slopes and improve water retention and water quality." While I am not convinced which technology he is referring to here, it is evident that he recognises there are some that do not meet these criteria (e.g. US corn-ethanol.)
Over the last few months a variety of proposals have been surfacing as to how to differentiate between these types of biofuels. The Netherlands released their Cramer Report requiring assessment of biofuel productions impact on greenhouse gas emissions, biodiversity and run-off, while Germany will be passing a mandate that biofuels meet a set of similar sustainability criteria in order to satisfy national biofuel targets. Dutch Minister Cramer insists that their requirements will be voluntary to begin with so as to avoid any trouble under the WTO, which is certainly a valid concern considering the Malaysian Palm Oil Council (MPOC) is already scrutinizing statements coming out of the EU.
In my opinion, this is shaping up to be quite an unprecedented debate, with tempers flairing on all sides. For one, when has the public ever asked where their transport fuel was sourced from? Sure everyone complains that by driving our cars we are by extension funding Al Qaeda's activities, but no one has yet to demand that oil companies label where they are sourcing their fuel (unlike our ability to choose between Italain tomatoes or Kenyan mange tout). Yet these proposals would demand exactly that, which would require some reorganization of our existing fuel distribution infrastructure to ensure differentiation. Unless that is, the EU was able to require that all biofuels produced and imported were sustainably certified, which could be viewed as an unfair trade barrier by its tropical trading partners. In fact, Malaysia and Indonesia are currently on the defensive, complaining that palm oil is being unfairly picked on (see Netherlands statement to halt all subsidies on imported palm oil for bioenergy). So there seems little doubt they would lodge a complaint should meaningful barriers be put in place. Secondly, you are seeing oil companies (under the guise of the OECD and others) actually highlighting the environmental impact of fuel production, in this case biofuel production, to maintain the status quo where their product continues dominate. Yet, I wonder if this strategy may eventually backfire, as one would imagine the public wouldn't stop at denouncing the environmental impact of biofuels and finally have a serious think about cutting our fossil fuel use (one can always dream). I've heard that oil companies are particularly loath to mandated biofuel blending targets as these only cut into their currently astronomical profits.
Vegetabel oil commodity prices are also shooting up, considered a direct result of US ethanol policies and poor soybean harvests. The New York Times recently published an interesting article about the ramifications of these price rises on slum dwellers in India. (http://www.nytimes.com/2008/01/19/business/worldbusiness/19palmoil.html?ex=1201410000&en=11d076a2c5b5841e&ei=5070&emc=eta1). Although the argument has been made that record food prices may actually be benefitting agriculturally dependent, developing countries by allowing farmers to actually receive more meaningful sums for their produce (obviously the question of access to markets and distribution of wealth is crucial here).
So I recommend you follow this debate as it seems to be really heating up! There is still quite a bit to be understood about current and future biofuels production methods as well as the dynamics of world food trade. But at least now the powers that be in the EU are finally realizing that to meet their significant reductions in emissions they can not rely so easily on biofuels to be a big player and may actually start looking at how to reduce their own domestic energy use (though that remains to be seen).
A Perspective on RSPO, Part II
The final day of the event saw a keynote address by the Minister of Plantation Industries and Commodities, YB Datuk Peter Chin Fah Kui. Here is where I highlight the progress the RSPO has made compared to the relatively small engagement with government to date. After two, what I would characterise, as rather productive days of discussion between the various sectors present, the speech by the Minister was a bit of a non sequitur. He began his speech by decrying the focus on palm oil as the only commodity undergoing such scrutiny, drawing the conclusion that Malaysia and Indonesia were being unfairly targeted by this environmental NGO propaganda. This assertion after several speeches had been made in previous days about the real example that the palm oil industry was making to the other commodities and the RSPO's role as standard setter for commodity markets of the future. He did echo, though probably not on purpose, the concern of many speakers that smallholder producers of palm oil were going to be negatively affected by certification unless requirements were either relaxed or costs significantly reduced so they could remain engaged. The Minister lamented the dominance of the RSPO and the 'giants' among the palm oil producers as the only two places smallholders could turn to for support. He also forthrightly stated that environmental NGOs should "always" play a constructive role in the process for certifying sustainable palm oil and should only expect "realistic" best management practices (BMPs). I can tell you the applause was anything but jubilant. But as a few commented afterwards, the position communicated by the Minister seemed to be more of a result of lack of awareness of how engaged the industry has been thus far and, dare I say it again, the progress that this multi-stakeholder process has made. Though whether the government will ever be appeased by the tempered criticism by social and environmental NGOs who are still waiting to see the changes being implemented on the ground, but overall claim to support the efforts being made by the RSPO. Most governments around the world have accepted that they will always in part be criticised as the non-governmental sector is rife with different perspectives and priorities that will never all be satisfied simultaneously. What was admirable, was the RSPOs efforts to provide a space for as many of these perspectives as possible during the 2 1/2 days of the Roundtable. As RSPO President Jan-Kees Vis stated again and again, this process is voluntary and can only demand best practice from its members. Groups such as Greenpeace or Borneo Orangutan Society (BOS), who were on a panel on promoting sustainable palm oil, would wish to see the worst practices done away with and until then images of forests burning, indigenous peoples being marginalised from their former lands and the charismatic Bornean and Sumatran species losing more and more habitat will remain in the media. I don't believe this was meant as a threat, just as a challenge to the RSPO and perhaps the industry to really police itself. What seemed obvious at the end of this meeting was that the RSPO was not and did not expect to be the solver of all problems social and environmental in the Southeast Asian region. Instead it could offer a positive alternative and hopefully a premium price for certified palm oil. What was not discussed more seriously was the growing food demand for India and China, let alone any significant use of palm oil for biofuels. To date, there is no principle requiring an account of greenhouse gas emissions from palm oil production, although a proposal has been made for a working group on greenhouse gas emissons primarily concerned with the issue of peat cultivation and the current uncertainty on rates of carbon emissions from draining these areas? I will leave it at that! Do post any reactions or questions you might have!
A Perspective on the RSPO, Part I
For those not familiar, the RSPO is an industry-led initiative (with significant NGO involvement) to coordinate best management practice, including greater recognition of environmental and social impacts, for oil palm cultivation (www.rspo.org). This year saw the 5th Roundtable held in Kuala Lumpur, where the certification scheme's principles and criteria were nearly finalised and the promise was made of certified palm oil to be in the market very soon. As an academic researcher, watching the progress of the RSPO and its real attempt to be inclusive and multi-disciplinary was fascinating. The meeting comprised over 500 attendees from some 28 countries, representing industry, social and environmental NGOs, academia, finance/banking and to a lesser extent government. Presentations ranged from trial implementation of the certification scheme's principle and criteria in Ghana, Brazil, Malaysia and Indonesia to what would be the best way to provide certified sustainable palm oil (CSPO) to the ready market; either through a completely segregated supply chain, to one of mass balance or via a credit (book and claim) scheme. For any questions on that very complicated debate I would refer you to the report produced by Proforest on the subject, outlining the three options that the RSPO governing body has agreed, thus far, to implement in parallel. (http://www.proforest.net/publication-objects/RSPO_Discussion_paper1_final.pdf) I was involved in co-facilitating a discussion on the second day of the meeting regarding the role of research in helping to design best management practice for encouraging biodiversity. i can tell you, I was totally blown away by both the interest and the engagement by a number of plantation managers in this conversation. Basically, the RSPO principles and criteria require some assessment of forests' "high conservation values" either before plantation establishment or in the case of many once the plantation is already operating. However, the most recent document provides very little guidance as to how this should be undertaken; hence the value of coordinating a technical committee on biodiversity where academics and plantation managers can share their experiences and expertise regarding maintaining biological corridors, using less chemicals for pest control or allowing riparian reserves to remain. This kind of initiative already has some support offered by the World Bank's Biodiversity and Agricultural Commodity's Programme (BACP) (http://www.ifc.org/ifcext/enviro.nsf/Content/Biodiversity_BACP). One point that came up, which I found surprising, was the concern of plantation managers in having to protect areas they had as set asides for biodiversity from human encroachment; either through poaching or slash and burn agriculture. They were asking that this technical committee would be capable of cooperating with local authorities to encourage their support in policing these areas and educating their citizens in the reasons for this conservation. Otherwise, the reality on the ground is almost round the clock security guards with guns trying to keep the local community out of these areas. While, I did not attend the previous Roundtable, I understand that the discussion of biodiversity assessment then was much more acrimonious with the environmental perspective clashing with the industrial. This was definitely not the case this year. There were several large palm oil companies present (IOI, Synergy and CDC were some of the most vocal) that were genuinely interested in support for capacity building and advice on what would be an acceptable level of monitoring and implementation. Whether or not they would be willing to support this initiative financially remains to be seen...
Palm Oil in Malaysia: First Entry
This is actually the second of my entries as I tried to give a short intro to who I am before, but this is my first blog from the field! I have spent a week in Malaysia so far based mainly in the capital, Kuala Lumpur. I attended two conferences, one organised by the British High Commission on climate change in the region and the second organised by the Global Carbon Project and Wetlands International on palm oil produced on peatlands. Both were fascinating opportunities with several preeminent people on hand offering a variety of opinions on biofuels. No surprise biodiesel from palm oil came up at both of these events as well as the notion of earning carbon emission credits from avoided deforestation. At the British High Commission event, a representative of the Malaysian Palm Oil Board (MPOB) presented their recent research done on life-cycle analysis of palm oil production focusing on the overall carbon emissions and energy balance. This is especially important as recent proposals from the Netherlands have suggested making at least a 30% greenhouse gas reduction in the production process be necessary in order for a biofuel to be used for transport fuel or electricity production. According to their calculations palm oil generates a 60-80% reduction in greenhouse gases. However, for those interested in this debate, a recent report produced by Crutzen calls into question the IPCC (Intergovernmental Panel on Climate Change) methods for estimating emissions from nitrous oxide, another potent greenhouse gas beside methane and carbon dioxide. The peatlands and palm oil conference was quite different, organised as more of a "stakeholder outreach" in order to invite palm oil producers to listen to findings from a two day experts meeting on the issue. As you can imagine the discussion got quite tense at times, with producers stating their frustration with the science to date on emission rates from drained peatland. A recent report by Wetlands International really set this debate by calculating that including emissions from drained peatland in national carbon emission calculations would put Indonesia as the third largest emitter in the world (after China and the US)--(incidentally I also found out that China is expected to surpass the US later this year in terms of carbon emissions!) According to one of the organisers, Prof. Pep Canadell, of the 30 million hectares of peatland in Indonesia, 8 million hectares have been opened up for agriculture and of that 3 million hectares have been converted and then abandoned. It is important to mention here that Indonesia is by no means the only country that produces food on drained peatland. China is producing significant volumes of soy, the EU cultivates maize and the US (in Florida) has drained peatland to grow sugar. The palm oil producers there were genuinely concerned that this sudden revelation of the emissions from their livelihood could be a 'death nail for palm oil on peatland.' A few didn't want to accept that even minor drainage would expose the organic matter in the soil to the air causing it to decompose rapidly, otherwise it is stored in highly acidic conditions (pH~3.5)where it cannot break down. Anyway, I overall was very impressed with the level and candidness of the discussion. Both sides seemed respectful of the other's position, although I am not convinced a great number of minds were changed. The final open panel did see the more serious mention of the interest in investors in finding peatland rehabilitation projects; as restoring degraded peatland could mean serious emission reductions. Time will tell if that will make a difference on the industry. So as I am rapidly fading here, I will save an entry on Borneo (where I have finally arrived!) for another time.
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