Guest view: Global hunger fight means no biofuel

A farmer spreads nitrogen fertilizer on his wheat field, in Inchy-en-Artois
A farmer spreads nitrogen fertilizer on his wheat field, in Inchy-en-Artois, France, May 19, 2022. REUTERS/Pascal Rossignol

LONDON, June 6 (Reuters Breakingviews) - Food supplies have shifted rapidly from surplus to shortage, and the United Nations has again warned about the heightened risks of world hunger. Since the time of the Pharaohs, governments have intervened to balance food supplies. But right now, those policies are making things worse.

With shipping disrupted in the Black Sea, wheat exports from Russia and Ukraine, respectively the first and fifth largest producers, continue to be severely curtailed. Yet while war has intensified food inflation, the hunger crisis has been building for longer, accelerated by climate change and Covid-19. The pressures extend beyond Black Sea supplies, with food security crises brewing in South America, Asia and Africa.

Since 2019, the U.N. Food and Agriculture Organization’s Food Price Index has risen by 58% to an all-time high, and prices of wheat and maize have doubled. The number of people facing acute food insecurity has more than doubled over this period, according to the World Food Programme, and 44 million people in 38 countries are at risk of famine.


Even though supply disruptions in many parts of the world are severe and policy solutions are challenging, Western governments do have the opportunity to reverse the rising cost of food through the simple scrapping of biofuel mandates. This would remove a very large non-food demand for crops and turn the current grain shortage to a surplus, easing the pressure on inflation.

When food prices jumped sharply in 2007 and again in 2010, it did not take long for a “food versus fuel” debate to materialise, which questioned the morality of using scarce food to make biofuels. The same thing could erupt any day now.

Many in high-income countries struggle to understand the true level of poverty experienced by billions of people. Lower middle-income countries have an average GDP per capita of less than $2,500 per annum, and it is less than $1,000 in low-income countries. For these 3.8 billion people, a high proportion of spending is on food.


Governments across the world require oil refiners to blend bioethanol, made from grains, and biodiesel, made from vegetable oils, into vehicle fuel. The typical standard is up to a 10% blend, which requires a vast quantity of crops. Last year, 155 billion litres of biofuels made from different crops were burned – as an example of scale, European countries turned wheat equivalent to over 5 billion loaves of bread into bioethanol.

Despite the name, any positive environmental claims for biofuels depend on controversial impact accounting. According to U.N. scientific reports, the planting of bioenergy crops is “detrimental to ecosystems” and “impedes achievement of numerous Sustainable Development Goals”. A recent study shows that U.S. corn ethanol emits more greenhouse gas emissions than conventional gasoline.

The problem biofuel policies sought to address was political, not environmental. Increased agricultural productivity since World War Two meant grain supply outstripped demand, leaving crop prices languishing. In the 40 years to 2020, the U.S. wheat price barely changed, while average U.S. consumer prices rose by 235%. Regulations requiring a proportion of fuel to come from crops have greatly increased demand, making biofuel policies highly popular among landowners and voters in some rural constituencies.


Globally, about 10% of all grain gets turned into biofuel. According to Gro Intelligence, the calories diverted to biofuel production from current policies and future commitments are equivalent to the annual needs of 1.9 billion people. Cancelling biofuel mandates would cause grain prices to fall significantly, as next season farmers would switch from growing fuel crops towards more food crops. Fertiliser prices would fall too, as less would be needed for non-food use.

Removing the supply of biofuels might risk pushing demand for conventional fuels up, increasing oil prices further. But these fears need to be put in proportion: only about half of oil use is for transportation fuel, and of that less than 10% is actually substituted with biofuel. Demand has been weakening as high fuel prices are causing motorists to drive less, and the slowdown in China is also reducing oil demand. In the medium and longer terms, the shift to renewable energy will reduce oil demand. On the supply side, in the short term OPEC+ and other oil producers could increase production more rapidly back towards pre-Covid production levels.

For U.S. President Joe Biden, who championed putting rural America first in a recent speech at a biofuel plant in Iowa, a volte-face could be challenging politically in the run-up to the U.S. midterm elections in November. However, significantly lower food prices would reduce economic stress not only for millions of lower-income Americans but billions more people around the globe.

The positive ripple effects could be far-reaching. Lower food prices could ease upward pressure on inflation rates and potentially diminish consumer expectations of future price rises. It could also reduce pressure on central bank monetary policies, lower bond yields and the cost of capital for business, relax strong-dollar currency stress, and reduce the risk of recession. There’s no time to waste.

Follow @Breakingviews on Twitter

(The author is a Reuters Breakingviews guest columnist. The opinions expressed are his own.)


Henry Boucher is partner and head of investment strategy at Sarasin & Partners.

Editing by George Hay and Oliver Taslic

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.