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The global trade in the cheapest foods is grinding to a halt.
In April, Indonesia temporarily banned exports of palm oil, cutting off India from one of its biggest sources of imported nutrition. India, in its turn last month, set a ceiling on exports of sugar, helping to keep more calories in the domestic market. Sugar is now hovering around its highest price in five years, while palm oil and soybean oil are at record levels.
Surprisingly enough, a single factor connects all of these disparate events: biofuels.
Two decades ago, no one could have predicted an electric vehicle manufacturer might end up as the world’s richest man. Without battery-powered cars, replacing gasoline and diesel with plant-derived alternatives seemed like the best way of tackling emissions from road transport. Since then, a technological revolution has overturned what we thought we knew about energy-efficient vehicles — but the blending mandates that guarantee a rising share of bioenergy in the world’s fuel pumps have stayed in place, and even been enhanced.
As a result, an industry that always had questionable advantages is now starting to be an impediment to cleaner modes of transport. Worse, the pressure it’s putting on the planet’s limited farmland is hampering our ability to feed the world’s poorest. It’s time to start dismantling the pipeline connecting farms to gas tanks before it does any more harm.
Look across the largest vehicle markets, and biofuel blending mandates are everywhere. In the US, with the second-largest national fleet, ethanol derived mostly from corn comprises more than 10% of all gasoline sold. India, the next-largest market, blends in 7.5%, largely from sugarcane. Indonesia and Brazil, which come next, now require mixes of 30% and 27%, respectively. Only China, the largest national market of all, has a lower rate of around 2.1%. The European Union, bigger even than China, requires a 10% blending mandate across the bloc.
There’s a problem with such mandates. If supply-demand imbalances push up the cost of corn, sugar or vegetable oils too much, most industrial and household consumers will work hard to find alternatives that better suit their budgets. That demand destruction helps rebalance the market and bring costs back to affordable levels. Fuel blenders rarely have so much discretion: If they’re below the mandated target, they must buy additional bioenergy at any price to make up the shortfall.
That’s leading to a situation where the world’s farmland is increasingly being given over to
producing road fuel. Roughly two-fifths of America’s corn and soybean crops now end up burned in engines. Even Brazil, whose sugarcane-based ethanol is reckoned to be some of the world’s most beneficial in climate terms, is increasingly dependent on imports of dirtier corn-based ethanol from the US, as demand exceeds the productive capacity of its own farms. Meanwhile, the 10 billion liters of biodiesel that Indonesia expects to consume this year will use up nearly a quarter of its palm oil crop, and roughly one-seventh of the global total.
—Bloomberg