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IDB, Biofuels and Rural Economic Development in Latin America and the Caribbean, 2010

IDB, Biofuels and Rural Economic Development in Latin America and the Caribbean, 2010

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Published by Detlef Loy

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Published by: Detlef Loy on Feb 17, 2013
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02/17/2013

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2.1

This report has two main objectives. The first objective is to examine the current
agricultural capacity in the Latin American and the Caribbean (LAC) countries to supply materials or
feedstocks and thus obtain estimates for the production of biofuels. Second, to examine the potential
impacts that large-scale expansion of biofuel production in LAC countries would have on food and
energy balances, and whether there would be significant impacts on food security, the environment
and the welfare of the rural poor in the region. The effects on international trade and markets are also
considered in the context of the LAC region. Following preliminary work done by IFPRI globally,
welfare impacts will be centered on Latin American countries, but will also be assessed in relation to
global trends. This study takes into account the response of farmers in other potential feedstock-
producing nations, both in LAC and globally, in order to induce changes in world market prices of
maize, sugarcane, and palm oil; as well as those of other important biofuel feedstock crops. In
addition, this study takes into account the implied pressures on agricultural land use, food availability
and water availability, when assessing the potential expansion of alternative feed stocks for
bioethanol or biodiesel production under the currently available conversion technologies.

2.2

One important consideration is obtaining a consensus on which are the priority uses for
biofuels produced in Latin America. This is an important issue as it helps frame the factors affecting
supply and demand for biofuels. For the purposes of this paper we will assume that the most likely
use is providing energy sources for transportation purposes. Although there are other significant uses
for biofuels produced in Latin America, the most likely formal market to rise – and establish
information signals in terms of prices and quantities demanded and supplied- is the one for biofuels
for transportation.2

2.3

While a portion of our analysis looks at the current large-scale producers of biofuel, such
as Brazil, United States, EU and South East Asia -as these are currently major players in the ethanol
and biodiesel production – we consider crops and selected Latin American countries that could
potentially benefit from scaled-up biofuel production in order to estimate impacts on their
agricultural economies. Given the limited set of large-scale biofuel producers in Latin America, our
analysis focuses on those Latin American countries which would be the most likely candidate to use
feedstock crops for either bioethanol or biodiesel production and who may use available conventional
technologies. Although the main focus of our analysis is the agricultural sector in Latin America and
its interaction with global agricultural commodities markets, we also give some general discussion of
the potential impact of agricultural and energy policies on Latin American and global energy markets
and the trade in the biofuel products themselves, using externally generated scenarios and available
modeling tools. Therefore in this report we attempted to address both positive and negative impacts
of biofuel expansion (See Box 2), while discussing alternatives to minimize risk and other negative
aspect of this development policy option.

2

Although in Latin America firewood is still used as an energy source, Martinot (2005) indicates that ―GDP and
the use of modern fuels are correlated. In fact above a GDP (per capita) of US$1,000 there is an almost complete
shift to modern fuels from firewood.‖ Implication of this quote is that considerations to replace firewood in favor
of modern fuels may be a determinant factor in those countries in Latin America and the Caribbean with a Gross
Domestic Product per capita less than $1,000 per year.

Biofuels and Rural Economic Development
in Latin America and the Caribbean

4

Box 2. Potential Positive and Negative Impacts from Biofuels Expansion in Developing Countries

Positive Impacts

Creation for new demand for agricultural products

o Alternative income sources in areas with
depressed agricultural prices

o Alternative employment opportunities in the
biofuel production chain (transport,
transformation, etc.)

Global trade in feedstocks (or biofuel) is an
opportunity for developing agricultural economies

o A means of expanding markets for food, feed,
or biofuel feedstock crops

o Higher prices for farmers

o Reduced environmental costs

Health and environmental benefits

o Displacement of wood fuel in household use

o Potential reduction in fuel emissions and
greenhouse gases including carbon dioxide,
hydrocarbons, sulphur and particulate matters.

o Carbon sequestration

Energy security

Negative Impacts

Food security impacts

o Displacement of food producers

o Higher food prices on net consumers

o Poor, vulnerable and food-insecure households
may not be able to cope with higher prices

Binding environmental impacts

o Competition for water (e.g. sugarcane in India,
maize in Northern China)

o Where water might be available - might also be
constraint on available land for expansion (e.g.
Southern China)

o Extensive use of crop residues (by 2nd
generation technology) would threaten
sustainability of crop land resources

o Excessive use of fertilizer and other capital-
intensive methods of production - impacts on
water quality, human health, wider ecosystem

o Clearing of tropical forest and cultivation of
ecologically fragile land

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