Trade Rules and Biofuels

Posted April 14, 2008

The global biofuel market has grown so quickly that international trade and investment rules aren’t prepared to handle the multiple challenges arising from this new sector. As an example, the World Trade Organization treats ethanol and biodiesel very differently under its rules. At the same time, the clearing of land to meet the growing need for biofuel feedstocks is causing a host of environmental problems, including threats to water and biodiversity (a topic IATP will tackle in an upcoming report). 

In a new paper published with our friends at the International Institute for Environment and Development,  IATP’s Sophia Murphy outlines how global rules will shape the biofuel market and how new rules are needed to support environmental sustainability, rural development and human rights. Below is our press release on the paper from today:

Global Trade Rules to Shape Biofuel Market

Minneapolis – The long-term sustainability of the fast-moving global biofuel market will depend on changes to international trade and investment rules that govern energy, environment, agriculture and rural development, according to a new paper published by the Institute for Agriculture and Trade Policy (IATP) and the London-based International Institute for Environment and Development (IIED).

“This industry has developed so quickly that governments at all levels, but particularly at the global level, have been slow to set rules on how to manage its growth,” said Sophia Murphy, IATP Senior Advisor and author of the paper. “It is critical that governments set global rules that support environmental sustainability and economic development for more than just a few companies.”

The paper, “The Multilateral Trade and Investment Context for Biofuels: Issues and Challenges,” outlines the different interests of the largest global players in the biofuel market, including the U.S., European Union and Brazil. The paper analyzes biofuel trade within the context of World Trade Organization rules governing agriculture, environmental goods, services, patents and investment. Biofuels raise a number of tricky trade questions, including: the acceptability of production and processing methods (PPMs) as a basis for discrimination among goods; the legitimacy of trade restrictive measures that support goals set in multilateral environmental agreements; and the effects of private standards on market access.

Current biofuel feedstocks are energy-intensive and involve largely industrial-scale monocultural production. In parts of the world, biofuel feedstock production is taking a heavy environmental toll on water, soil, and ecological biodiversity. Investment from foreign firms seeking biofuel feedstock is also aggravating land disputes and intensifying the political fight to protect food security. The paper discusses some of the issues on developing sustainability standards for biofuel production and calls for a multilateral discussion to set trade and investment rules that support a fair and sustainable biofuel sector.

“International guidelines could complement what will ultimately be local and national decisions,” said Murphy. “Such guidelines could carve out space for policies that are dictated by human rights and environmental norms, and could help to reshape trade and investment obligations to be more supportive of sustainable development.”

The paper can be read at: www.iatp.org.

The Institute for Agriculture and Trade Policy works at the intersection of policy and practice to ensure fair and sustainable food, farm and trade systems for all people. www.iatp.org. IIED is an independent, non-profit research institute working in the field of sustainable development at the local, national, regional and global level. www.iied.org.

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Good Jobs, Green Jobs... for everyone!

Posted March 14, 2008

IATPers Jim Harkness, Lindsay Dahl and I are all at the "Green Jobs, Good Jobs" conference in Pittsburgh today and it has been a very powerful and uplifting experience. Organized by the Blue-Green Alliance, which brings together the United Steelworkers and the Sierra Club, this is the first national conference to focus not only on the global warming and environmental challenges we face, but more importantly, on how we need to restructure our economy and create jobs to address these challenges.

Yesterday was a great start, with multiple speakers and panels on issues ranging from public policy and investment to the role of green chemistry and energy in rebuilding rural and urban economies. Carl Pope of the Sierra Club gave a stirring speech to help open the conference and place it in context, by asking the essential question: how do we ensure, as we move into a green jobs economy, that poor people, people of color and rural communities aren't left out? The response from Lou Schorsch, CEO of Flat Caron America and ArcelorMittal North America, the world's largest steel company, was emblematic of the problems we face: "I'm a business guy, so that's a hard question for me." 

Minnesota is the home of Dave Foster, the Executive Director of the Blue-Green Alliance, so it's not surprising that much of the work here has been highlighted. Minnesotan presenters included Minneapolis Mayor R.T. Rybak, Minnesota State Senator Ellen Anderson, and Piper Jaffrey's Lois Quam yesterday, with Senator Amy Klobuchar scheduled to speak today. While we know things aren't perfect back home and we still face many challenges in moving toward green and good jobs, it's clear that Minnesota has lessons and approaches that other states and regions can learn from, so a little "Minnesota-pride" is deserved!

For me, however, it is the focus on jobs, people and justice that has me most excited. Marko Trbovich of the United Steel Workers, gave a rousing speech to end yesterday's program, where he spoke directly to the connections between climate change and international trade. Some of the key points include:
- Climate change is the most pervasive form of globalization.
- Climate change is inextricably linked to international trade.
- To really make the policy changes we need to address global warming, we need to reform our trade system.

These connections with people and justice were brought into sharp focus this morning by an incredibly emotional and powerful speech given by Van Jones, Director of "Green for All" in Oakland, CA. Van spoke of the victories our movement has already achieved, shown most starkly in the fact that "polluters" are trying to sound just like us now on climate issues. But he emphasized that as we move forward politically and as a movement from the margins to the center, we need to make sure that we use this opportunity to bring all folks forward -- that the green economy isn't just about reclaiming "stuff," but more importantly a chance to reclaim thrown away children and lives. As Van said, those communities pushed down by a pollution-based economy need to be lifted up by the green economy -- we have the chance and obligation to create a green wave that can lift all boats and has a place for everyone. 

To create this "green pathway out of poverty," Van pointed to the need for the right policies, politics and principles. We need to create a green workforce to meet our new labor needs, but one that is open and accessible to our marginalized community members. Van then talked about some of the programs in Oakland that have offered training to the undereducated and formerly incarcerated, and how these opportunities -- including the chance to join a union -- are helping raise people out of poverty and bring them in from the margins. The Green Jobs Act of 2007, a part of the Energy and Security Act, can help us get there, through training 30,000 people a year in skills needed for our new economy.

Van also spoke to the need for a new politics, whereby we create a movement and the political will to truly address the problems we face - a "Green New Deal" that can provide the kind of governance we need at this critical time. And finally, we need the right principles, which means sticking up for the little people and not leaving anyone behind. As Van so eloquently stated, evoking the brutal abandonment of the poor in New Orleans after Katrina, and in the process the whole principle of climate justice: "We reject the politics of sink-or-swim in the time of floods." 

For me, Van and his work reflects the real challenges we face as we try to build this new green economy -- simply replacing an inequitable fossil fuel economy with a biobased or renewable economy based on the same power and political structures won't get us where we need to go. For the green economy to truly succeed, it is clear that it needs to start and end with justice for all. That means continuing to make sure that people of all classes and races are engaged in this work, and that we build the bridges and coalitions with farmers, inner city residents, indigenous communities, and others to make sure that the solutions put forward to our global warming and environmental crises are crafted to ensure that we move from hurting poor people and the planet to helping them both.

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Farmer Agreement Offers Alternative to NAFTA's Failures

Posted February 4, 2008

On January 1, 2008, the North American Free Trade Agreement (NAFTA) came into full effect after a 15-year phase-in for more sensitive agricultural products like sugar, white corn, beans and dairy. This means the last remaining tariffs are no longer legally binding, including those on sugar imported from Mexico to the U.S., and vice versa. Additionally, the Mexican government will no longer block imported high fructose corn syrup from the U.S., which competes directly with sugar in the Mexican sweetener markets.

The expected fallout threatens to hurt sugar farmers on both sides of the border. This threat is so dire, that it has provided an impetus for Mexican and American sugar growers to reach an historic agreement to modify the final implementation of NAFTA. 

First, let’s look at the chaos NAFTA is expected to bring to sugar markets in the U.S. and Mexico.

An expected import surge of U.S. corn syrup will likely displace Mexican sugar from the Mexican sweetener market. Mexican sugar growers also face the prospect of increased U.S sugar imports, because the current U.S. cost of production for sugar is less than in Mexico. Moreover, increased imports from other countries have created a substantial U.S. surplus of sugar that could be dumped into Mexico.

In the U.S., sugar displaced from the Mexican market by corn syrup could be exported to the U.S. This could overwhelm the delicately balanced U.S. inventory management system, already under siege by increased imports from World Trade Organization (WTO) and Central American Free Trade Agreement (CAFTA) obligations. 

All these threats taken together would likely depress sugar prices below the cost of production on both sides of the border, resulting in a shutdown of most of the North American sugar industry. 

However, there is more at stake here than the fate of an agricultural commodity. Sugar is Mexico’s largest remaining agricultural industry. According to the U.S. Department of Agriculture Foreign Agricultural Service, there are an estimated 158,000 sugar farms in Mexico that average 10 acres in size. These farms supply 58 mills located in 15 of the country’s poorest 35 states. The Mexican sugar industry directly employs more than 300,000 workers, including cane cutters, seasonal field workers, and factory workers; and indirectly supports another 2.2 million jobs. 

The NAFTA-mandated destruction of the Mexican sugar industry would likely cause a new wave of immigrants to try to find work in the United States. This new migration would rival the well documented surge of Mexican migration caused by U.S. export dumping of yellow corn into Mexico facilitated by NAFTA over the last decade.

Thus far, Mexican sugar farmers have been spared the devastating effects of dumped imports because the Mexican government has refused for 15 years to deregulate their sweetener market.  Just as importantly, U.S. sugar growers have had enough political clout to defend their own sugar program that—unlike other U.S. farm programs—manages inventories, prevents overproduction and export dumping, and guarantees farmers a fair price at no cost to U.S. taxpayers.   

For decades, high fructose corn syrup has competed with sugar in an increasingly integrated sweetener market. In fact, the rules for this sweetener war under NAFTA have been continually in dispute literally since the signing of the agreement in 1994. As NAFTA forced Mexico to deregulate its sweetener market, cheaper U.S. corn syrup began taking market share away from Mexican sugar growers, especially in the soft drink market. Mexico tried to protect its sugar growers: first with anti-dumping measures; and then with a tax on corn syrup. However, the U.S. government, on behalf of the Corn Refiners Association (including Cargill and Archer Daniels Midland), dutifully challenged Mexico’s actions before international trade tribunals under both NAFTA and the WTO, and won.

Significantly, the agreement reached by U.S. and Mexican sugar growers sets the stage for managing the sweetener market between the two countries in a way that could benefit farmers in both countries. Specifically, the deal would modify the implementation of full NAFTA deregulation of Mexican and U.S. sweetener markets by:

·         Building on a provision currently included in the pending Farm Bill that would allow the use of some sugar to produce ethanol as a means to manage excess supplies.

·         Managing sugar supplies used for ethanol production separately from sugar used for human consumption; a prudent step given the growing controversy over fuel versus fuel.   

·         Limiting import surges of Mexican sugar exports to the U.S. caused by displacement of Mexican sugar from the anticipated import surges of high fructose corn syrup being dumped by multinational agribusinesses into Mexico.

·         Managing the two countries’ sugar re-export programs to provide a smoother and more predictable transition to a more integrated North American sweetener market. 

·         Providing Mexican and U.S. sugar growers with preferential market access to North American sugar markets—both for human and ethanol consumption—while still fulfilling the two countries’ existing WTO and other international trade commitments.

·         Establishing a Joint Mexico-United States Sugar Commission to resolve future disputes, rather than leaving them up to secret NAFTA tribunals.

The agreement has been circulated among appropriate government officials in both countries, and various options have been suggested for moving the agreement forward.

The mutual threat of lost markets and livelihoods has compelled Mexican and U.S. sugar farmers to work out an agreement that will give both sides a fighting chance to survive. The deal could help resolve the endless trade disputes and uncertainty that have wreaked havoc in the sweetener market since NAFTA was signed. It could curtail the otherwise inevitable increase in cross-border dumping of sweeteners that threatens to irrevocably damage the North American sugar industry, which is so important to both the Mexican and the U.S. economies. Finally, it could help us avoid another displacement of Mexican agricultural workers who will be forced to migrate north if we allow NAFTA to be implemented unencumbered.

For more information on the connections between agriculture, trade and immigration, go to Trade Observatory.

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"The market will get brutal next year"

Posted January 2, 2008

News late last year of the merger of the third (VeraSun) and fourth (US Bioenergy) largest U.S. ethanol producers is not surprising, but it should serve as a warning to farmer and community-owned facilities.

Matt McKinney, of the Star Tribune, quotes an analyst from Wells Fargo Securities as stating, "The market will get brutal next year. The ones I worry about are the one- and two-facility guys. They're just, in my humble view, going to get crushed."

An article by DTN's Todd Neeley reports that the big ethanol players, like Archer Daniels Midland, are expected to take advantage of the downturn in the ethanol market to buy up smaller players. Neeley quotes Purdue agriculture economist Christopher Hurt as saying, "ADM has already made it known that they are in the market for more ethanol capacity at a reasonable price. . .Traditionally ADM has been a buyer of distressed assets and I would guess that would be the case for ethanol plants as well."

Neeley also quotes ethanol analyst James Eiler as stating that ADM and Poet "have publicly stated that they will consider expanding their asset base through acquisition, versus their practice to date of building their own proprietary plants."

The rapid consolidation in the ethanol sector is familiar to those who have followed agriculture markets over the years. University of Missouri economists Mary Hendrickson and William Heffernan have documented consolidation in other agriculture sectors over the last several decades. In their analysis earlier this year, ethanol was the only sector where consolidation had actually declined over the last 20 years. Now that is changing as corn prices rise and the margins for ethanol production narrow.

Why does it matter who owns the ethanol industry? As IATP's Jim Kleinschmit has written, "ownership of the refineries by local farmers and community members is seen as the key aspect to sustainable rural development. Local ownership assures that the facility is based to some extent on local resources and needs, and that much of the money generated remains in the local economy."

A study last year by the National Corn Growers Association found a much greater economic benefit for rural communities and rural households when ethanol plants are locally-owned.

Both the Farm Bill and Energy Bill have the opportunity to set policies that encourage farmer and community ownership of biofuel plants in the U.S., following the lead set in Minnesota which offered incentives and loans for farmer-owned plants.

Other sectors of the agricultural economy have become so consolidated that farmers are simply over-matched in the marketplace. They are price-takers, forced to accept whatever is offered from a few companies for what they produce, often at below their cost of production. Over the last several decades, a handful of big companies have extracted both the natural resources and profits out of many rural communities. As the biofuel sector shakes out, we should take care not to repeat the same mistakes and prioritize local ownership.

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Sustainability in the Farm Bill

Posted December 11, 2007

This week, the Senate will vote on 40 final amendments to the Farm Bill. One amendment the Senate should support comes from Senators Wyden and Harkin. The amendment would restore sustainable production criteria to the Bioenergy Crop Transition Assistance Program (BCTAP) within the Farm Bill's Energy Title.

In the Farm Bill coming out of the Senate Agriculture Committee, the BCTAP would assist farmers and foresters who want to produce cellulosic bioenergy crops for the next generation of bioenergy refineries. The Wyden-Harkin Amendment would go a step further by creating incentive and cost share payments to farmers growing perennial bioenergy crops that meet certain sustainable stewardship thresholds to promote clean water, healthy soil, wildlife habitat, and reduced carbon.

Over 90 organizations, including IATP, sent a letter to Senators on Friday outlining why the Wyden and Harkin amendment is important. The National Campaign for Sustainable Agriculture has put together an Action Alert on the Wyden-Harkin amendment.

The current corn-based system for ethanol threatens to cause a number of environmental problems. IATP has written about potential water quantity and water quality issues related to a strictly corn-based system. An article co-authored by IATP's Dr. Dennis Keeney and Mark Muller in the June issue of the journal Science, outlined how perennial grasses could help lead the way towards a more sustainable cropping system that has long-term environmental and rural development benefits.

The current biofuel sector in the U.S. has devotedly followed the incentives set by public policy. Past Farm Bills have encouraged the mass production of biofuels' first primary feedstock - corn. The policies we set in the 2007 Farm Bill will play a big role in determining the long-term sustainability of the next generation of biofuel crops.

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Following up with Cargill

Posted November 19, 2007

This is a quick follow-up to our posting on a meeting with Rainforest Action Network and representatives from Paraguay, Brazil and Papau New Guinea. In that post, we heard from campesino leaders about the destruction of valuable ecological and community resources in the effort to expand agricultural production to be used as biofuel feedstocks - in some cases to be exported to other countries.

RAN's blog, The Understory, describes a meeting the group had later that day with Cargill and a letter they presented to the company outlining their concerns. The letter, describing what's at stake in each region, is powerful and gets to the heart of the question: who will benefit?

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Biofuels and Development

Posted November 11, 2007

As IATP's Sophia Murphy wrote this week, assessing the biofuel sector is complicated. In the U.S., the expansion of the biofuel sector is a hot button issue, due partially to higher food prices and partially to environmental issues (including water quantity and quality). But outside of the U.S., particularly in poor countries, the expansion of crop production to fill biofuel needs is downright incendiary.

Earlier this week, IATP hosted a tour coordinated by Rainforest Action Network (RAN), which has just launched its Rainforest Agribusiness campaign targeting Cargill, Archer Daniels Midland and Bunge. The tour included representatives from Paraguay, Brazil, and Papau New Guinea. The stories they told were eerily similar. Each talked about how these U.S.-based companies were working with their national governments to clear land for biofuel feedstocks and in the process destroying some of the world's most diverse natural ecosystems and indigenous cultures.

Francisco Avalos, a small farm leader from San Pedro, Paraguay, told us, "My biggest worry is the monoculture soy that is using the richest soil, forest and rainforest where indigenous campesinoes have lived. People are being displaced and it is displacing our culture and way of life. Our government and the transnationals are complicit in this lack of respect for human rights and nature."

Hiparidi Toptiro, an indigenous leader from the Cerrado region of Brazil, told us, "Agribusiness is having a party but not inviting the rest of us to join them." Toptiro characterized the experience of young boys from his region forced to work in sugar cane refineries as "a form of slavory."

Lynette Hamuga, a small farmer from Papua New Guinea, told us, "People are suffering. They are destroying our forests. Companies have made promises to landowners who plant palm that they will build new roads, schools, houses and hospitals. But I have not seen it. Only the company is getting richer and richer while the owner of the land suffers."

One of the incentives for developing country governments to expand production for biofuel feedstocks are loans from international financial institutions, explained George Laume, of the Center for Environmental Law and Community Rights, in Papua New Guinea.

Earlier this year, IATP's Jim Kleinschmit outlined key benchmarks for future development of the biofuel sector in the U.S., including an emphasis on farmer/community ownership, support for soil, water and wildlife habitat, and long-term environmental sustainability. From what we heard, none of these benchmarks for development are remotely being met in Brazil, Paraguay or Papau New Guinea.

As Lynette Hamuga told us, "What is development? Is development destruction? Is development people suffering? It is not in my language, so I don't understand."

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Searching for clarity on biofuels

Posted November 7, 2007

IATP finds itself in an interesting place in the recent tidal wave of interest around biofuels. Our initial interest came from our work with local farmers and rural communities in Minnesota and surrounding states. These farmers and their communities were looking for a way to add value to their crops when prices were at record lows. The debate was far from today's discussion of food scarcity. In those days, maybe five to seven years ago, the focus was all on how to control apparent over-production, which was depressing prices and generating unsustainably large income support payments from the craziness that is federal U.S. agricultural policy. Exports had decidedly failed to expand in the wake of the Uruguay Round Agreements, despite the apparently authoritative promises of corporate traders and government officials alike.

Many U.S. farmers were already trade-sceptics, understanding that their problem was they sold something worth relatively little (corn or soy or wheat) to firms that turned it into something relatively valuable (meat or bread or Frosted Flakes). Farmers could also see that the reason the raw materials were not worth much was that very few firms were in charge of this process of adding value to grain, giving those firms the market power to keep prices low, even when global supply was not epecially high.

Then came biofuels, and a whole new, domestic market. Here was a chance to recapture some of that precious market power, and to make a contribution to reducing greenhouse gases at the same time.

Five years on, the scene is much more complicated. That surplus production disappeared in a few bad harvests, dried up by drought in the major grain-growing regions of the world (did someone say, climate change?). Prices for agricultural commodities have started to climb, while a number of people are pointing to the obvious (if simplistic) moral dilemma of using scarce land, water and soil for fuel rather than for food, especially in a country whose energy use is wholly unsustainable and largely responsible for climate change that is going to hurt some of the world's poorest (and least energy wasteful) countries. (Read here for IATP's take on aspects of that question.) Everyone wants a piece of the money they see attached to this latest craze and not enough people are honest about either the potential or the risks involved.

Here are a few thoughts to get us started: 1. biofuels have many feedstocks and can be made in more than one way. What is true for corn grown in Minnesota and processed by a farmer-owned ethanol plant will not necessarily hold for palm oil grown in Malaysia and processed in Germany, or even for soybeans grown in Minnesota to make bio-diesel for local use. 2. Different countries and regions have different allocations of arable land and water: they can and should consider the potential to use that land to generate energy on its merits. It may make sense to use agricultural crops for energy in one province or region and not in another within the same country. 3. We need to distinguish public investment from subsidies. Where can the state make a contribution to overcome the myriad distortions that plague energy and agricultural markets, to protect an important new opportunity? Where are programs designed simply to pay farmers, or processors, to continue with the bad old unsustainable agriculture? There is a difference - we need to develop and agree on the standards by which we will distinguish good public expenditure from bad.

How about starting with commodities that are local, fairly priced and sustainably grown? And all in the context of an energy policy that is about reducing use--in the case of the U.S., reducing energy use dramatically. It sounds easy but it isn't. We have to move away from the increasingly shrill nature of the debate now in progress and back to grounding the discussion in something more tangible. Not biofuels: Yes or No? But Biofuels: What kind? Where grown? How used? For What? Who benefits? Those are the questions IATP is asking -- see here and here for short analyses of very different aspects of biofuels production.

It would be a pity for the biggest new market in a generation to evaporate in bad policy choices and greed. Just as it would be criminal to allow energy-hungry rich countries to continue their bid to commandeer the land of the developing world. There is more than one good way out of the seeming impasse - let's explore some options.

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A Perennial Bioeconomy?

Posted July 19, 2007

This month, the USDA announced that the amount of U.S. land planted to corn had increased an incredible 18.5 percent, up to 92.9 million acres. The corn boom is directly tied to the ethanol boom, which in the U.S. is almost exclusively dependent on corn. Most believe that an ethanol system built entirely on corn is unsustainable in the long run. And we're already seeing some environmental fall-out with government officials predicting the so-called dead zone in the Gulf of Mexico will be the biggest ever this year, due to increased runoff from nitrogen fertilizer used to grow corn entering the Mississippi River.

An article in the June 15 issue of the journal Science points toward a solution. Researchers, led by the University of Minnesota's Nick Jordan, conclude that an expansion of perennial energy crops to feed the bioeconomy will diversify Midwest farms and bring a series of economic and environmental benefits. They found that many of the environmental problems in agriculture are associated with commodity program crops (particularly corn and soybeans), including the degradation of water quality with sediment, nutrients and pesticides, disruption of wildlife habitat, emission of greenhouse gases and degradation of air quality.

Perennial cropping systems on the other hand are more resilient because they actually reduce soil and nitrogen loss, and have greater capacity to sequester greenhouse gases, while improving wildlife.The authors propose a $20 million annual federal investment in the 2007 Farm Bill to look at policy approaches to compensate farmers for the production of environmental benefits in growing perennial energy grasses.

When considering the size of the Farm Bill, $20 million isn't much to ask to help push the bioeconomy toward long-term sustainability.

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