Biofuels, food security and compensatory subsidies

Purpose – The purpose of this paper is to examine the relationship between food security and cleaner energy and evaluate the financial viability of both ethanol and biodiesel productions in Southern Brazil, the current battleground region among food, ethanol and biodiesel. Southeastern Brazil was chosen to carry the analyses because that is the current battleground region for food, ethanol and biodiesel. Design/methodology/approach – The analyses to be carried out encompass the following steps: evaluate the investment needs for the ethanol and biodiesel programs in Southeast Brazil; gather information on financial costs, converting them to economic costs to evaluate the economic desirability of the programs; evaluate the possible subsidy needed to fulfill the programs' goals; and evaluate the biofuel-food tradeoff under some different scenarios. Findings – The conclusion is that Brazil, despite being the most efficient producer of ethanol, may very well be forced to use compensatory subsidies for ethanol production if the USA persists in imposing importing tariffs on that Brazilian commodity. On food security matters, the production of ethanol has to compete with beef production, whose prices present a rising trend because of strong demand in emerging countries. For the same reason biodiesel becomes less viable the stronger the demand for vegetable oil. Originality/value – The competition among these three alternative uses of natural resources will become tougher in the coming decades as, on the one hand, consumption of food and energy increases at high rates. Developed countries, on the other hand, continue to be heavy polluters and at the same time create all sorts of obstacles to the expansion of food and clean energy production elsewhere.