While less than two years ago biofuels were seen as THE road to salvation for an agricultural sector that was losing steam, the new situation of world agriculture is shattering the growth prospects for Europe's biofuels industry. In fact, an increasing number of farmers are being tempted to move away from biofuel production plants, with which they enter into five-year contracts, to take better advantage of the recent explosion in the price of raw materials on world markets. With the price for a ton of wheat jumping from 100 euros to more than 250 euros in just a few months, this surge undermines the profitability of industrial plants.
This is even more the case since the European Commission’s Management Committee for Direct Payments decided on October 17 to reduce EU aid for energy crops by 30 percent. This year, the special support of 45 euros per hectare, implemented in 2003 to develop the industry, will only be granted to 70 percent of the land for which it was requested. The Commission justifies its decision by the fact that the threshold of 2 million hectares declared eligible for aid in Europe has been exceeded. Speaking about the decisions, Mariann Fischer Boel stated that this aid "has been very useful. But when we come to the Health Check of the Common Agricultural Policy next month, we will have to ask whether it is still necessary."
This piece of bad news comes on top of the other difficulties currently facing the international biofuel industry.
Competition between land used for energy crops and land for food production is coming under increasing fire. On October 25, Jean Ziegler, UN Special Rapporteur on the Right to Food, will submit a proposal for an international moratorium aiming to implement a 5-year ban on the conversion of arable land for energy production. The moratorium would seek to alleviate skyrocketing agricultural prices, which hurt poor countries that are highly dependant on imports. Following after the FAO, whose Director-General Jacques Diouf recently voiced concern about the "risk of social and political conflicts" caused by soaring prices, and the OECD, whose latest report concludes that "the potential of [biofuels] to deliver a major contribution to the energy demands of the transport sector without compromising food prices and the environment is very limited," it is now the IMF's turn to warn the international community. "The use of food as a source of fuel may have serious implications for the demand for food if the expansion of biofuels continues," the financial institution warned in its October 17 report. The IMF is using this to justify a reduction of American and European customs barriers to "green" fuels imported from emerging countries such as Brazil, "where production is cheaper, more efficient and environmentally less damaging."
In fact, a series of studies discredits the environmental effectiveness of most first generation biofuels. Among those that have made waves is Nobel Laureate in Chemistry Paul Crutzen who, contrary to previous estimations, says that only sugar cane, which is produced primarily in Brazil, would be beneficial in terms of reducing climate change. With regard to emissions of nitrous gas (N2O) – a greenhouse gas 296 times more powerful than CO2 that is produced during the conversion of nitrogen from yield-enhancing fertilizers – using biofuels produced from other crops could exacerbate global warming. Burning rapeseed biofuel (80% of Europe's biofuel production) would therefore contribute 1 to 1.7 times more to global warming than the same amount of fossil fuels.
However, Brazil alone cannot meet the world's transport energy needs. Moreover, many are speaking out to condemn the conditions of workers and the erosion of biodiversity due to Amazon deforestation, which are the primary reasons for Brazil's competitiveness. Others, in the United States and Europe alike, insist on the importance of guaranteeing energy independence, with the price of a barrel of oil continuing to hover around 90 dollars, and justifying the protection of their national agricultural industries.
Now attention has turned to second generation biofuels, which could be produced in larger volumes in response to the criticism of their predecessors.
The biofuel industry once again illustrates how quickly agricultural market trends can be reversed. The development of this sector raises the stakes for agriculture, makes the future of agriculture less clear and, therefore – today more than ever – justifies the creation of new tools for international decision making and agricultural market regulation.