By Catherine Hornby
ROME Aug 10 The U.N.'s food agency stepped up
the pressure on the United States on Friday to change its
biofuel policies because of the danger of a world food crisis,
arguing the importance of growing crops for food over their use
Global alarm over the potential for a food crisis of the
kind seen in 2007/08 has escalated as drought in the U.S.
midwest has sent grain prices to record highs, fuelling a
6 percent surge in the UN Food and Agriculture Organisation's
July food price index.
The FAO's Director-General Jose Graziano Da Silva wrote in
the Financial Times on Friday that competition for a U.S. corn
crop that has been ravaged by the worst drought in 56 years was
only going to intensify.
"Much of the reduced crop will be claimed by biofuel
production in line with U.S. federal mandates, leaving even less
for food and feed markets," he wrote in an editorial.
"An immediate, temporary suspension of that mandate would
give some respite to the market and allow more of the crop to be
channelled towards food and feed uses," he said in the high
profile yet indirect message to Washington.
Under the five-year-old Renewable Fuels Standard (RFS), U.S.
fuel companies are required to ensure that 9 percent of their
gasoline pools are made up of ethanol this year, which means
converting some 40 percent of the corn crop into the biofuel.
The U.S. Department of Agriculture on Friday slashed its
estimates for the size of the corn crop by more than expected,
sending corn futures prices, already up 60 percent since June,
to a fresh all-time high.
A mix of high oil prices, growing use of biofuels,
speculation on commodity markets and export restrictions pushed
up prices of food in 2007/08, sparking violent protests in
countries including Egypt, Cameroon and Haiti.
David Hallam, director of the FAO's trade and markets
division, told Reuters that biofuels policies needed to become
more flexible to help prevent new food crises developing.
"One idea is you have some kind of price trigger so that as
maize prices rise then the mandates adjust," he said, adding
that the FAO wanted to reopen debate on biofuels policies.
The FAO has joined a growing and diverse chorus calling for
an unprecedented waiver or suspension of the RFS. This week, 25
U.S. Senators urged the Environmental Protection Agency (EPA) to
adjust the mandate, while the chief executive of grains giant
Cargill said the free market should dictate biofuels use.
Livestock producers, which are forced to bid against ethanol
producers to secure costlier grain for feed, were first to ask
for relief. However, the EPA has yet to receive an official
petition for a waiver, which can only come from a fuel blender
or a state governor, according to the legislation.
FAO officials have warned of the potential for a food crisis
to develop if countries resort to the kind of export restraints
and panic buying that aggravated price surges in 2007/08.
"It is vitally important that any unilateral policy
reactions from countries, whether importers or exporters, do not
further destabilise the situation," Graziano Da Silva wrote in
Charity Oxfam has warned that rising food prices could drag
millions of people around the world into conditions of hunger
and malnourishment, in addition to nearly one billion who are
already too poor to feed themselves.
While the RFS program faces growing criticism, it also has
strong support from Farm Belt politicians in an election year
and has been a core part of President Obama's energy plan. Some
say suspending it would do little to relax demand.
Waiving the mandate could have several unintended effects,
such as dampening investment in cellulosic and other advanced
biofuels that could cut dependence on food crops for making
fuel, or damage the market for dried distillers' grains, an
ethanol byproduct sold as a livestock feed.
In 2008, Texas Governor Rick Perry petitioned the EPA to cut
the mandate in half for that year. The EPA refused, but in doing
so it made clear that future petitions would have to prove that
the RFS itself was causing severe economic harm.