Drought puts squeeze on EU biofuel policy – Water shortages blamed for rise in food prices

The European Union's policy on biofuel
is coming under renewed pressure because of a severe drought in the United
States that is pushing up food prices. More than 60% of the continental United
States experienced moderate to exceptional drought this summer, making it the
worst drought in 50 years.

The drought is already being blamed for
a 6% rise in global food prices in July. Next Wednesday (12 September) the US
will publish its latest figures on how the drought has affected food prices,
amid fears of a repeat of the spike in food prices of early 2008.

The United Nation's Food and
Agriculture Organisation (FAO) called on Tuesday (4 September) for the US government
to suspend its targets for the production of ethanol-based biofuel, made from
maize. Roughly 40% of US maize production is earmarked for bioethanol,
supported by government subsidies. The diversion of maize into fuel production
is held by critics of the policy to contribute to higher food prices. As well
as being an ingredient of food for humans, maize is an important element of
animal feed. Maize prices rose 23% in July compared to June, according to the
FAO.

The International Grains Council has forecast
that world production of maize will drop by 4% and that stocks will fall to a
six-year low.

UN support

Two other UN agencies – the
International Fund for Agricultural Development (IFAD) and the World Food
Programme (WFP) – backed the FAO's call. "Adjusting biofuel mandates when
global markets come under pressure and food supplies are endangered has been
recommended by a group of international organisations," the agencies said.

But a cut in the US bioethanol target
would detrimentally affect farmers in maize-growing states in the American
midwest. Political analysts believe the US government will not make any move to
suspend the target in the run-up to the presidential and Congressional
elections, because Iowa is a crucial swing state. Ethanol subsidies enjoy
support in the US from both presidential candidates.

The French government called a special
meeting last week of the G20's Agricultural Market Information System to
discuss the situation. France wants to hold an emergency meeting of the G20's
Rapid Response Forum to deal with rising food prices.

The UN agencies' criticism of biofuel
targets has been taken up by food campaigners, and the food industry which has
long campaigned for the EU to abandon its target of 10% of all transport fuel
coming from renewable sources by 2020. Disagreement within the European
Commission has stalled an analysis of how biofuel affects food prices and land
use.

But the European Renewable Ethanol
Association (ePURE) hit back against the criticism, issuing a statement last
week saying that to make a link between bioethanol production and an increase
in global food prices amounted to "groundless accusations".

"Global grain use for biofuels is
miniscule and nowhere near enough to inflate prices significantly," said Rob
Vierhout, secretary-general of ePURE. "Europe has enough grain to produce both
its food and fuel needs. Blaming biofuels is the lazy option."