Will ethanol fuel prosperity or poverty in Africa?
15 November 2006
While the immediate impact of higher oil prices on general inflation, the cost of transport and the cost of agricultural inputs (inorganic fertilisers are petroleum derivatives) has attracted much concern in food insecure countries, a more disturbing dimension of the global energy crisis, which has received relatively little attention, threatens to have an even more significant impact on hunger and poverty in sub-Saharan Africa. A recent article in South Africa’s Mail & Guardian newspaper ( “Forget oil, look at food prices” on 20th October, 2006) highlighted the sharp rise in domestic and international staple food prices. In South Africa, maize prices have risen 160 per cent in the past year to their current level of R1,300 per tonne. Although this partly reflects the previous season’s lower planted area, the M&G reports that “staple food prices have been trading internationally at record highs”. Ominously, the article explains that this trend is being “driven by the world’s move to . . . produce bio-fuels (or ethanol) as an alternative to fossil fuels”. A few weeks earlier, in an article primarily about America’s farm subsidies ( “Uncle Sam’s teat”), The Economist reported that “the amount of corn (maize) used for ethanol production (in the US) has soared” and that the amount of ethanol produced in 2005 was “4 billion gallons, more than double the output of 2001”. One-fifth of the estimated US maize harvest of 290m tons is anticipated to be devoted to ethanol production in the coming year.
The emergence of ethanol as a competitor for maize and other staple food supplies (ethanol can be produced from any carbohydrate-rich source, from sorghum to sugar) could signify a major adjustment not only in the economics of global food production and trade but also in the economics and politics of food aid.
Indeed, substantial downward revisions of US food aid allocations to countries such as Ethiopia and Zambia suggest that the pinch on commodity aid is already beginning to be felt.
How aware governments are of this emerging trend and how they respond to a potential ethanol-led boom could have a lasting impact on hunger and poverty of millions of sub-Saharan Africans.
If the ethanol boom scenario is right, three things seem certain from a southern African perspective: - Staple food prices will rise, even in countries where there is no ethanol market.
- Grain surpluses of major exporting countries – including South Africa – will decline.
- Food aid surpluses in the US and other major commodity aid providers will shrink: “Uncle Sam’s teat”, so to speak, could dry up.
If this happens, will governments in the region be tempted to re-introduce sweeping protectionist measures in an attempt to ensure adequate food supplies and to keep food prices down? Or, will they see the ethanol boom as an opportunity rather than a threat? Increased demand for ethanol could improve the viability of agriculture in southern Africa by increasing demand for maize and for alternative food crops, and could create employment in countries where productivity has been declining and where unemployment is pervasive.
And what of the global scarcity of food aid: Without the assurance that donors would come to the rescue, could governments of food deficit countries be forced into confining their use of this resource to emergency situations where market failure is evident, and using other types of social transfers, especially cash, more comprehensively to address poverty?
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