FUEL OR FOOD? WHAT KIND OF QUESTION IS THAT?

The law of unintended consequences. That's what this lengthy, informative piece by the Times describes. Climate change turned everybody to biofuels. U.S. corporate farms grabbed for the windfall corn ethanol scam. Multinational corporations grabbed for the palm oil boom in the developing world. The result? Soaring costs and shortages. Supply cannot keep up with demand. The middle classes are grumbling about prices. The poor’s bellies are grumbling.

No price has gone up like that of “edible” oil, especially palm oil. The oil palm is one of the highest per-acre plant producers of biofuel raw materials. It also yields more human food-per-acre than any plant except sugar cane. The big shift in the U.S. to corn has created shortages of soybean oil everywhere, raising demand for palm oil. Prices are up 70%. Production is up 2.7%. Tropical forests are being raped and replaced with oil palm plantations.

Palm oil was once regarded as unhealthy in the U.S. but is now a highly desired replacement for trans fats. A limited-time deal on cooking oil in China caused riots in which 3 people were killed and 31 hurt.

The Roundtable for Sustainable Palm Oil has been organized by the World Wildlife Fund (WWF) to deal with this matter but its intentions remain in some doubt. (See ROUNDTABLE ON SUSTAINABLE PALM OIL: WILL IT SAVE RAINFORESTS?)

There efforts to get the situation under control but there is no sign they are working. (click to enlarge)

The good news: The folks in India and Mali growing jatropha are getting potentially richer all the time.

A New Global Oil Quandry: Costly Fuel Means Costly Calories
Keith Bradsher (w/Andrew Martin, Anand Giridharadas and Michael Rubenstein), January 19, 2008 (NY Times)

WHO
Those racing to capitalize on the biofuels boom versus everybody who eats.

WHAT
The “other” oil shock: Staple foods shortages and soaring prices for vegetable oils in the wake of booming demand for biofuels.

Prices remain at the top of the charts in Malaysia. (click to enlarge)

WHEN
- 2006: The UN food price index rose 14%
- 2007: The UN food price index rose 37%
- 2007: Biofuels accounted for almost 50% of world demand for vegetable oils

WHERE
Protests in Pakistan over wheat shortages and in Indonesia over soybean shortages. Egypt banned rice exports. China put price controls on cooking oil, grain, meat, milk and eggs. Food riots have erupted in Guinea, Mauritania, Mexico, Morocco, Senegal, Uzbekistan and Yemen. The Malaysian recently released emergency supplies of palm oil to head off protests.

WHY
- Increased price for fuel changes the economics of growing and transporting food.
- Huge demand for biofuels drives landowners to grow for fuel not food.
- Expansion of the middle class is driving demand for transportation fuels and vegetable oils.
- Climate change-caused drought and flood are cutting into productive lands.
- A black market is developing for vegetable oils.
- An Australian palm oil refinery in Malaysia had to shut down because it couldn’t afford the raw material.

The corn ethanol scam is not helping the situation. (click to enlarge)

QUOTES
- He Changchui, Asia/Pacific rep, UN Food and Agriculture Organization: “The urban poor, the rural landless and small and marginal farmers stand to lose…”
- Mark Weyland, U.S. product manager, Loders Croklaan, a Dutch palm oil supplier: Four years ago, when this whole no-trans issue started, we processed no palm here…Now it’s our biggest seller.”
- Nathan Mahalingam, managing director, Australia’s Mission Biofuels, on shutting down their refinery due to high palm oil prices: “We took a view that palm oil prices were already high; we didn’t think they could go even higher, and then they did…”
- Janaron Kawle, family patriarch, the Kawle family of Mumbai’s Dharavi slum: “If the [palm oil] prices go up again…we’ll cut the mutton to twice a month and use less oil.”