EU drafts warn of biofuels' link to hunger

BRUSSELS Fri Mar 5, 2010 7:26am EST

BRUSSELS (Reuters) - The European Union's promotion of plant-based biofuels will raise EU farm incomes and agricultural commodity prices, but could create food shortages for the world's poorest consumers, draft EU reports show.

The EU has a legal target to get a tenth of its road transport fuels from renewable sources such as biofuels by 2020. For EU farmers hit by falling incomes, Europe's 5 billion euros-per-year ($6.84 billion) biofuels market is coveted as a source of new revenues.

Impact studies drafted for EU policymakers -- included in 116 documents released to Reuters under freedom of information laws -- predict that current biofuel policies will boost EU farm incomes by 3.5 percent in 2020.

But the studies also reveal concerns about the unintended impact of Europe's thirst for biofuels.

"A new and strongly growing non-food demand for agricultural output will undoubtedly boost farm prices and hence farmers' incomes," one report says.

"However, the desired effect may come at a potentially high cost: a human cost paid by the world's poorest consumers who may face higher food prices or food shortages."

High food prices in 2008 led to food riots in some developing countries and were partly blamed on biofuels such as ethanol consuming part of the U.S. corn crop.

"The simulated effects of EU biofuels policies imply a considerable shock to agricultural commodity markets," the report reads.

MORE WORK NEEDED

Internal communications in the European Commission describe the modeling exercises as "scientifically acknowledged and robust." But more work needs to be done before drawing firm policy conclusions, a spokeswoman for the EU executive told Reuters.

EU demand for cereals such as wheat -- used to make ethanol -- will rise by about 7 percent in the next decade as a direct result of its biofuel policies, raising cereal prices by 10 percent, one modeling study shows.

World prices for sugar and maize (corn), also used to make ethanol, are predicted to rise 20 percent due to EU demand for biofuels. Sugar imports will rise sharply as a result, despite EU sugar beet production increasing by 10 percent, another model predicts.

The greatest impact of EU demand for biofuels will be on the price of vegetable oils, used to make biodiesel. The EU will account for nearly half the world's biodiesel consumption in 2020, the studies say, leading to a 30-35 percent rise in vegetable oil prices.

EU vegetable oil imports could more than double to 20 million tonnes in 2020, the studies show, with much of the increased demand being met by increased palm oil production in Indonesia and Malaysia.

Environmentalists warn that to meet the added demand for biofuels, farmers around the world will expand into new areas, sometimes by clearing tropical rainforests and draining peatlands.

(Additional reporting by Pete Harrison; Editing by Keiron Henderson)