SADRN Policy Brief 2: The impact of biofuels on food prices in the Southern African Customs Union

The quest for new sources of energy away from traditional petroleum products has in recent times led to the development and use of biological material (biomass). As the name suggests, biofuels are developed from organic materials. Thus an increase in the price of oil has also increased demand for biofuels, resulting in a high correlation between agricultural commodities* prices, particularly maize, and energy prices. While escalating petroleum prices are one reason for the quest for other sources of energy, this is not the only factor. The search for alternative sources of energy was underscored by environmental concerns and energy security concerns in the US and European Union countries about their reliance on oil from a few countries. The use of food products to generate fuel has raised concerns that this will raise prices of essential food items for poor households – and experts agree that biofuel production has affected the cost of food. Estimates range from a conservative estimate of 2%-3% by the US Department of Agriculture to 70%- 75% in a study done by Mitchell (2008)**. Has this increased production of biofuels resulted in a shortage of food supplies at the household level? Has that shortage – perceived or real — resulted in a permanent increase in prices thus threatening food security for poor households? Assuming that increased biofuels production threatens poor households' food supplies, what policy choices are available to governments in the Southern African Customs Union (SACU)? biofuels production on maize prices, how the rise in maize prices affected low-income groups in SACU, and whether and when exportable maize surpluses are likely in South Africa.