In the first decade of the 21^st century, global production of ethanol and biodiesel increased nearly tenfold. If that trend continues, says Rosamond L. Naylor, director of Stanford University’s Center on Food Security and the Environment, national biofuels policies will have an increasingly powerful impact on food prices, food security, energy security, and rural incomes in the developing world.

During a two-hour symposium held on the Stanford campus last Wednesday, Naylor addressed the role of biofuels in global food price volatility and the implications of biofuels development in rural Africa and Asia. Although she acknowledged that global income and population growth have contributed to increased demand for biofuels, she also emphasized “the unbelievable dominance of policy” in driving current trends.

“The main part of this that I think is so significant is the use of mandates,” Naylor said. “Policies such as the United States’ Renewable Fuels Standard (RFS), which sets a national target of using 15 billion gallons of corn-based ethanol per year by 2015, have reshaped price and supply dynamics in both food and fuel markets. “

“When you think about the fact that the US provides half of the world’s corn…the fact that we’re using so much in our gas tanks, biofuels really is changing the nature of global markets,” Naylor said. Policies that fix demand for corn from the ethanol market, she explained, have a destabilizing effect on corn prices, especially in the face of supply shortages.

“When you have mandates you have a quantity that you’re absolutely insisting you use, regardless of the price,” she said. “That inelastic demand leads to more volatile prices with supply shocks.”

Because of the substitutability of basic food commodities, Naylor said, price volatility in the corn market has far-reaching consequences. “Prices of corn ripple through all of the world food economy markets…it affects the demand and supply of wheat and rice and soy, and other things,” she explained. And for poor households in the developing world, she said, “it has big income effects…when you’re spending 70 to 80 percent of your budget on food, you’re going to be hurt the most.”

However, Naylor also noted that biofuel mandates in the developed world could provide valuable market opportunities for developing-country farmers.

In rural Africa and Asia, she said, farmers “see the US having a big mandate, EU having a big mandate, and they think, can they supply into that mandated need?”

For now, it seems, the answer is “maybe.” In Africa, for example, efforts are underway to increase the use of jatropha – an inedible, drought-resistant shrub – as a biofuel feedstock. But Naylor said that low yields and high labor costs are likely to severely limit the economic returns from jatropha-based biofuels.

And in marginal growing conditions, the use of more conventional feedstocks is often restricted by resource availability. In India, for example, where almost all sugarcane is grown under irrigated conditions, expansion of sugarcane area to supply the ethanol market could lead to water shortages. Even if these countries can make large-scale biofuel production economically viable, the benefits to poor farmers could vary widely depending on the structure of the market.

“The implications of biofuel development are going to be quite different,” Naylor said, “depending on the organization of the value chain.”

Dr. Siwa Msangi, a Senior Research Fellow with the International Food Policy Research Institute, agreed. In comments following Naylor’s presentation, Msangi said biofuel development contributes most effectively to rural income growth “when you can have vertical integration…people all along the value chain have to be making money.”

Msangi also noted that commodity price increases, including those driven by ethanol mandates, could benefit small farmers if they are controlled and predictable. “Sharp, fast, sudden price rises – those are the ones that are bad for consumers,” he explained. But prices rises “can be positive…especially if those price rises can be gradual and sustained over time, because that gives people the opportunity to mobilize resources to make use of higher returns.” For example, small farmers at the local or national level can increase their production of crops in high demand for biofuel production.

The emerging connections between agriculture and energy markets are complex, Msangi said, but can be advantageous if handled carefully. “If there are good opportunities for agribusiness, I think there’s a case for taking them,” he said, “but also for being aware of the context and all the issues.”

This was the eighth talk in FSE’s Global Food Policy and Food Security Symposium Series. 

As the Arab world undergoes an unprecedented period of political transition, many are looking towards a new development model to spur economic growth and social advancement. The Program on Arab Reform and Democracy (ARD) at Stanford's Center on Democracy, Development, and the Rule of Law examined this question during its third annual conference on April 26-27, 2012 at Stanford University. The conference featured leading academics, practitioners, and activists, who looked beyond economics to present a more integrated framework for development.

According to ARD Program Manager Lina Khatib, "A goal of the conference is to present an integrated approach to development in the Arab world, particularly in places witnessing democratic transition, which links social, political, and economic factors."

The conference included a diverse array of speakers hailing from the political and social sectors, representing youth leaders, religious minorities, women's rights advocates, and civil society representatives, who joined economists to discuss new regional frameworks for development.

Conference speakers included: Mona Makram Ebeid, who has a long and distinguished career as a parliamentarian in Egypt, commenting on the challenges facing minority rights in democratic transition; Hedi Larbi, director of the Middle East department at the World Bank, who will address the issue of oil dependency and how it constrains economic development in the Gulf region; Libyan NGO leader Rihab Elhaj who co-founded The New Libya Foundation and who will speak about the important role civil society plays in the development equation; and Valentine Moghadam, professor of sociology at Northeastern University and a leading expert on gender issues, who will examine political development through a gender lens.

To view the complete program and download the presentation documents and conference report, please click here.