Asian Development Bank: Biofuels making food more expensive

Gillian Wong, Associated Press Yahoo News 21 Apr 08;

Developed nations should stop paying agricultural subsidies to encourage biofuel production because the payments are making staple foods more expensive, the Asian Development Bank said Monday.

Biofuels should also be re-examined by governments around the world as it is increasingly unclear how environmentally friendly they are, ADB Managing Director General Rajat Nag said in an interview with The Associated Press. The production of biofuel leads to forests being destroyed and reduced land area for growing crops for food, he said.

"We feel that the developed countries should seriously rethink the whole issue of biofuel, particularly the biofuel subsidies," Nag said. "Giving subsidies for biofuels ... basically acts as an implicit tax on staple foods."

Paying farmers to grow oilseed and other crops to produce biofuels means they grow fewer food crops, resulting in higher prices for such staples as palm oil and corn.

Nag did not give examples, but countries that subsidize biofuel include the U.S., the world's largest producer of ethanol, which is made mostly from corn and other grain crops. The country's farm subsidy programs include payments for ethanol production.

"We believe it is more important to let the developed country farmers decide on what they will plant, based on the relative prices, based on the international prices, but not subsidized prices," he said.

Surging food prices, stoked by rising fuel costs that have increased production and transport costs, have triggered protests around the world in recent weeks. Riots have erupted over food shortages in the Caribbean and Africa and hunger is approaching crisis stage in parts of Asia.

Nag said rising food prices will be top on the agenda of the ADB's annual board of governors meeting in Madrid next week.

He urged governments faced with rising food prices not to impose price caps or export bans, as the measures could prove counterproductive. Price controls are disincentives for farmers amid the rising costs, he said.

"The cost of production is going up, so the obvious, rational reaction (to price caps) of the farmer is to reduce planting, which is exactly the opposite of what we want. We want production to increase, not decrease," he said.

Nag said governments should instead consider targeted cash income transfers to the poor. The Manila-based bank was ready to provide loans to governments to help ease the situation, he said, but added that no country has made any specific requests yet.

"If the governments go for the targeted income support, obviously this will add to the fiscal burden of the governments, so ADB will be very responsive and willing to consider budget support for the government, and providing program loans," he said.

In Asia, Nag said, the supply of rice to the region remained adequate even though stocks have slipped to their lowest in decades.

"We want to get the focus away from being dramatized or an overreaction to the supply situation. It is tight, no doubt about it," he said. "But it is not a situation when rice is not available in the region as a whole."

Nag said, however, that the rapid increase in the price of rice had a "very serious impact" on the region's poor, who spend a large proportion of their income on food.

"The prices have increased very dramatically, almost three times in the last one year and almost twice in the last three months," he said.

Nag said the hardest hit by rising food prices in the Asia Pacific include 600 million people who survive on a dollar a day or less, and about the same number who live on just above a dollar — making up a group of about 1.2 billion who are vulnerable.

The region's poor usually spend about half of their budgets on food, but recent increases have pushed that proportion to about 80 percent in some parts of South Asia, he said.