Food Security and Biofuels: Can Policy Flexibility Reduce Food Price Crises for the Poor? Part One: Global Markets and Brazil Sugar Cane Production Case

Food crises are created by sudden loss of supply or, more often, sharp increases in the prices of foodstuffs on which poor populations rely for daily nourishment. Any mechanism with the potential to alleviate suffering caused by spikes in food prices is worthy of consideration. Several studies and agencies have recommended introducing flexibility into policy driven demand for agricultural biofuel feedstocks to address food price crises (e.g., report of the FAO, IFAD, IMF, OECD, UNCTAD, WFP, the World Bank, the WTO, IFPRI, and the UN High Level Task Force, 2011).  These proposals suggest that feedstock such as sugarcane can be diverted from biofuel production to food in order to dampen the impact of volatile cereals prices on the poor.  This presentation reviews the evidence for and against temporary shifting of policies to reduce biofuel output in response to food price crises. This talk considers the experiences and data associated with the second largest producer of biofuel in the world, Brazil. The behavior of prices for Brazil sugar, food baskets (consumer price indices for food), and energy are considered along with other drivers identified to influence food price spikes. Special attention is given to periods of price volatility, including responses of the modernized sugarcane milling industry to sudden price signals such as a sharp spike in sugar prices in 2010-2011.  We review data for how much time was required for industry to respond, the magnitude of the response, the effects on global prices, and a discussion of the factors that govern the flexibility and responsiveness of the industry to price signals.  These data are analyzed to examine if and when biofuel feedstock could be diverted and to assess what the implications would be of such diversion in time of food price crisis.  The evidence identifies many caveats to consider before implementing diversion proposals. Recommendations are offered for development pathways that could simultaneously improve food security and energy security and thereby address the needs of the populations most vulnerable to food price crises.