Biofuels: Bad News for Food?

April 21, 2008 -- Developed nations should stop paying agricultural subsidies to encourage biofuel production because the payments are making staple foods more expensive, the Asian Development Bank said Monday.

Biofuels should also be re-examined by governments around the world as it is increasingly unclear how environmentally friendly they are, ADB Managing Director General Rajat Nag said. The production of biofuel leads to forests being destroyed and reduced land area for growing crops for food, he said.

"We feel that the developed countries should seriously rethink the whole issue of biofuel, particularly the biofuel subsidies," Nag said. "Giving subsidies for biofuels ... basically acts as an implicit tax on staple foods."

Paying farmers to grow oilseed and other crops to produce biofuels means they grow fewer food crops, resulting in higher prices for such staples as palm oil and corn.

Nag did not give examples, but countries that subsidize biofuel include the U.S., the world's largest producer of ethanol, which is made mostly from corn and other grain crops. The country's farm subsidy programs include payments for ethanol production.

"We believe it is more important to let the developed country farmers decide on what they will plant, based on the relative prices, based on the international prices, but not subsidized prices," he said.

Surging food prices, stoked by rising fuel costs that have increased production and transport costs, have triggered protests around the world in recent weeks. Riots have erupted over food shortages in the Caribbean and Africa and hunger is approaching crisis stage in parts of Asia.

Nag said rising food prices will be top on the agenda of the ADB's annual board of governors meeting in Madrid next week.

He urged governments faced with rising food prices not to impose price caps or export bans, as the measures could prove counterproductive. Price controls are disincentives for farmers amid the rising costs, he said.