Global and Regional Development and Impact of Biofuels. Jun Yang
Planning, Ministry of Agriculture and Irrigation, Myanmar; Dounghatai Danvivathana, Director, Foreign Relations Division, Office of the Permanent Secretary, Ministry of Agriculture and Cooperatives, Thailand; and Le Van Minh, Director General, International Cooperation Department, MARD, Viet Nam.
Technical and logistical support was provided by the GMS Working Group on Agriculture Secretariat based at ADB headquarters, composed of Marilou Drilon, Sununtar Setboonsarng, and Sarah Cueno. Thanks go also to the ADB Resident Offices for facilitating the workshops and team meetings in the GMS countries.
The initial editing of the reports was done by Mercedita A. Sombilla. The manuscript editor was Caroline Ahmad, and the copy editors were Corazon Desuasido and Toby Miller. The final review of the studies was done by Urooj Malik.
Financial management and accounting support was provided by Oscar Badiola. Imelda Batangantang and SEARCA’s accounting unit monitored the project’s financial flow.
Finally, many thanks are due to the numerous other colleagues, partners, and stakeholders who provided valuable comments and information which added to the richness of the documents.
Introduction
Global production of biofuels has been growing rapidly. While the motivation for this expansion is complex, the most important rationale is to enhance national energy security. Due to the growing demand for fossil fuels and their relatively limited supply, governments of many energy-short countries are searching for any and all means to increase their energy production.,1 A continued rise in oil prices and/or rapid improvements in biofuel production technology will encourage private firms and individuals to invest in biofuel enterprises for profit. Governments are also interested in biofuels because they offer a means to increase energy consumption without increasing the amount of carbon dioxide (CO2) released into the atmosphere. Crops that produce feedstock for biofuel production essentially take CO2 from the air, so when biofuel is burned and CO2 is again released there is no net gain. However, there are arguments about whether or not the outcome really is a zero sum game (footnote 1).2 Some governments also see biofuels as a way to support the politically powerful—and, depending on the country, politically sensitive—farm sector. Promoting this source of energy can raise farm prices and improve the incomes and welfare of those involved in farming.
Biofuels offer the potential to spur rural development, but there are concerns regarding their impact on food security and poverty. Biofuels may facilitate agricultural and rural development by fostering greater investment in agriculture and creating jobs in feedstock production, biofuel manufacturing, and in the transport and distribution of feedstock and products.3 Since feedstock accounts for more than half of the cost of biofuels production, biofuel development will promote the production of feedstock crops significantly. However, the potential effects on food security and poverty should not be overlooked.4 If there is a major rise in the price of staple foods worldwide, or if the demand for crops for processing into fuels increases substantially, the age-old concern of governments and development practitioners—food security and poverty—may become a major issue.
The countries of the Greater Mekong Subregion (GMS), like many other countries in the world, have made plans or are planning to develop strong national biofuel programs.5 The level of biofuels development varies greatly among countries, but by 2007 every country had set out a biofuel development plan.6
However, the ability to develop and sustain the rapid expansion of biofuel production is hindered by a lack of information and understanding of the economics of its market. It has been observed in the GMS and elsewhere that no country has been able to launch a domestic biofuels industry without government support beyond the normal regulatory role.7
Biofuel development in the GMS must therefore take into account the full spectrum of market and social values, such as foregone food production and other agricultural outputs, environmental impact, and improvements in the welfare of the rural poor. Economic analysis is needed to evaluate the social costs and benefits of biofuels and to decide when, where, and how to embark on a biofuel program. Economic analysis can also help reshape planned or existing programs to maximize their efficiency and their net benefits to society.
This study is one of the first steps to try to improve understanding of the global and regional impacts of biofuel development on agriculture and on the rest of the economy, with specific focus on the GMS. The analysis aims to provide preliminary answers to the following questions:
| (i) | How will the rise in demand for biofuels affect global food prices? |
| (ii) | How will global and GMS biofuel development programs affect national and regional agricultural production and trade? |
| (iii) | What are the implications on household food security, poverty, and the use of land and water resources in the GMS? |
Answers to these questions could feed into policy recommendations to help ensure the development of economically and socially sound biofuels programs in the countries of the GMS.
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