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Bio-Fuels: Food or Fuel?

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Executive Summary

Food shortages and security concerns after the Second World War drove many countries to encourage agricultural production through various forms of subsidisation and protectionist measures.  These subsidies survived long after their intended usefulness ended, causing a huge over-supply of agricultural commodity products throughout much of the developed Western world.  As the mountains of product grew many countries responded by reinforcing protectionist measures to support their primary industries and shield their own markets from foreign traders.  Under the relentless pressure from over-supply, commodity prices consistently kept falling in real terms and agriculturalists typically responded by increasing production even further to become more efficient in order to maintain the standard of living they had become used to.

As we enter the twenty-first century new forces are emerging which will shape the path that agriculture takes in the near future and it will be to the advantage of those involved in the industry to have some understanding of those pressures and how they might affect the future direction of agriculture.

Agriculture is being used to shoulder some of the world’s increasing energy needs, especially in the transport industry.  Bio-fuels easily utilise existing infrastructure and therefore becomes a natural alternative to fossil fuels.  Developed countries have increasing concerns surrounding national security for both food and fuel.  The prospect of remaining dependent on the Middle East for ever-decreasing amounts of oil is not attractive to most Western countries and in particular America.  Although bio-fuels are unlikely to replace fossil fuels they do play a strategic part in reducing dependency on a volatile source of supply.

Commodities flow around the world more readily than ever before with improved transportation, communication and financial services enabling this to happen.  Trade barriers have come under intense pressure as countries have sought to trade their surplus agricultural products on the world market.  It might be expected that under such pressure these barriers would have been lowered much more quickly than has been the case.  One reason for the slow dismantling of trade barriers is best explained by the comment made by Darci Vetter, Director for Agricultural Affairs in Washington DC when she said:

“America gives nothing away at the negotiating table without getting something in return”.

The complicated process of finding suitable trade-offs when giving trade concessions is clearly a difficult task that is often responsible for the stalling of trade negotiations.  While in many circumstances politicians have a willingness to lower these barriers, they will not do so without some perceived trade concessions being made in another area.

Bio Fuels: Food or Fuel? – Steven Sterne