With global oil prices back on upward trajectory, there exists a clear and present danger. With crude at $80 a barrel on Monday, there are concerns that if oil continues to escalate at same pace then it will also pull the price of all other commodities, especially food items, sharply upwards.
The rebound in oil is largely due to higher inflation in the US which is depreciating its currency and forcing oil producers to increase price as the Fed has kept interest rates at zero percent alongside the stimulus plan. In addition, fuel demand from three big emerging economies - China, India and Brazil - and OPECs invisible moves to curtail oil supply points to further increases in the price of oil.
Keeping recent history in mind, this presents an alarming situation as escalating fuel prices create a demand for bio-fuel. This subsequently creates a food shortage as most of the basic commodities including maize, wheat and palm oil are used to produce energy. The recent emergence of ethanol based fuel in Pakistan also falls in the same category.
Food vs. fuel battle has already been ignited in past few years as the trade off between the two is very sensitive. For example; the quantity grain required to fill the tank of sports utility vehicles with ethanol (240 kg of maize for 100 liters of ethanol) can feed one person for one whole year, according to a World Bank report.
The recent hike in international sugar prices is also a part of the same problem. While sugar shortage is partly to be blamed on lower output in India and Brazil, it is also to be blamed on growing demand of ethanol in Brazil, which consumes 50 percent of its sugar output.
In the aftermath of growing demand for biofuel, projected to increase by 2.3 percent in 2015 and by 3.2 percent in 2030 according to World Energy Outlook, a massive food shortage is seen ahead.
As for the price projection, its simply too dreadful, given that the biofuel currently meets just one percent of world transportation needs but accounts for 10 percent increase in global food index. And consequently, the issue will also gather more intensity as competition for water will increase and structure of land holding would shift from small holders to large industrial owner.
In short, the times ahead are testing and unless Pakistani government starts acting today in advance to boost indigenous agriculture output and controls food hoarding through effective resource management mechanism, all support schemes and subsidies for poor would be in vain. And as usual, the poor would be hit the most.
As for the world, the ultimate goal is to find a balance between how much of agriculture production can be used for fuel and how much is needed to maintain sufficient supply of food at affordable prices in order to feed the world population.
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