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Q: Food vs Fuel? A: Wrong question…We need more efficient markets!

I have been working with Jay Golden at Duke University on the biobased forecasting project for the USDA, seeking to understand the current scope of the biobased product market ( focused on non-fuel, non-food products).  I had the opportunity to speak today with an educated economist who works  for the OmniTech International.  He has been working in the industry for over 25 years, and we had an opportunity to share thoughts on the “food vs. fuel” debate.

As a representative of the soybean farming community, there is strong empirical evidence that the “food vs fuel” debate is a non-issue.  Many people, including legislators, argue that we should not be using agricultural land for biobased fuels like biodiesel or corn-based ethanol, as there are starving people still in the world.  This is a misguided argument.  This individual noted that “We need to understand and the public and regulators and legislators need to understand that there is no shortage of food.  There is hunger in the market, but it is not caused by a shortage of food.  Looking at vegetable oils, with a global population of 7B people, each consuming the recommended 40g of dietary fat per day, 365 days per year, would require just over 100M metric tons of oil.

We are currently according to the USDA producing over 160M metric tons of refined vegetable oil alone.  We have another 100M metric tons from animal sources.  We have 2.5 times the recommended amount of dietary fat to feed the world’s existing population – so it doesn’t hurt to make a little soap from for biobased products, or biobased diesel.

You can make arguments on what it does to the cost of food , but we have spent too much time and effort discussing issues like indirect land use, which is irrelevant, and has no impact on the availability of food.  If there is real demand for a commodity, and that demand is between energy and food and industrial uses, it is going to be produced by somebody if the market will pay enough for somebody to produce it.  If we use soybean oil to make biodiesel in this country which promotes palm tree growth in Malaysia – it is not something we can control.  Somebody will do it regardless of our country – there is X amount of demand for total fuel and chemicals in the market and nothing we can do policy-wise is going to change that.

We can with empirical evidence show that there is no shortage of food in the world, since sometime in the 1960s.  We have more than we need to eat.  It is just about getting it distributed more evenly, and overcoming poverty, which raises the real issue of most every part of the world can practice agriculture, but they don’t because they aren’t efficient and can’t compete economically with Western countries.  Haiti grew all of its own rice, until the World Bank told them to take the tariff off – and once they removed the tariff – they could buy it cheaper from the US and Vietnam than they could grow it in the country.  The problem became poverty was increased in Haiti, because they lost the income they had enjoyed from growing rice.  Cheap food is not good for third world countries – more expensive food helps them become at least partially self-sufficient.”

This individual then commented on the need to create efficient markets for bioproducts that will promote their use.  He  noted that  “I served on the biomass development technical advisory committee a few years ago, and the first five years was under Bush, and the last years was under the Obama administration.  We saw a lot more initiative in the last year than we did in the first five!  But I was asked the question once from an old soybean farmer from SD as we we were specifically looking at the use of solid biofuels.  He asked the question:  “What would it take to get solid biofuels used to replace coal in generating electricity?”

My response was “When you go to plant in the spring – you look at the markets.  But if you are a power company and are thinking about using biomass –  how do you look at the price of what biomass is going to be a month from now?  Or six months or a year from now. The old farmer responsed “I understand”.   Hee went to the Chicago Mercantile Exchange and tried to negotiate having them build a futures contract for wood chips and pellets – something that is still not out of the gate, 8 years later.  If I I were a Duke Energy or ConEd, and could compare co-firing biomass products vs. coal, I would have a clear economic picture of the benefits.  A CO2 premium would make that even more appealing…but we won’t go there…