In the last few years, demand for ethanol and biodiesel derived from grains, vegetable oils, sugar and other crops or derived products has risen sharply, reaching a level where the entire agricultural sector and its markets are being affected.

This is not the headline of an anti-biofuel propagandist. It is the beginning of the abstract of a paper on Biofuels and Commodity Markets - Palm Oil Focus, by P. Thoenes from the Commodities and Trade Division of FAO (Food and Agricultural Organization of the United Nations). The reason why I bring in palm oil here is the following statement in the FAO paper: “There is general consensus that - in the absence of subsidies - palm oil is by far the most competitive vegetable oil for the production of biodiesel.” Even without biodiesel, the demand for palm oil has gone up sharply and took up about 50% of the global vegetable oil market in 2005, partly by cutting down rainforest in Malaysia and Indonesia.

According to the FAO paper, first studies have been conducted to calculate country and feedstock specific threshold prices indicating at which level of fossil fuel prices biofuel production becomes economically viable: based on two such studies, the following ranking of different raw materials for biofuels emerges (indicating increasing threshold prices or decreasing economic viability, at conditions prevailing in 2005/06):

1st sugar cane (Brazil), 2nd cassava (Thailand), 3rd palm oil (Malaysia and Indonesia), 4th maize (USA), 5th sugar beet (EU), 6th rapeseed oil (Canada, EU), 7th wheat (EU or USA). Here is another table showing which of those are mostly in use and how harmful they are to the environment, food and water ressources. (Click spreadsheet if you cannot read everything)

Even well-known global warming advocates are now puzzled about how to maintain the green image of biofuels vs. fossil fuels. One of them is Lester Brown, president of the Earth Policy Institute (EPO). Here is an extract of the CNN interview of April 25, 2008:

TOM FOREMAN, CNN ANCHOR: Voters grappling with the issue that we’re all grappling with right now. Soaring food prices. What’s the solution?

I’m joined by a man who thinks he might see some solution to all of this. Lester Brown, president of the EPO and author of “Plan B 3.0: Mobilizing to Save Civilization.” And up in New York, a man who knows all the answers are or so, he tells me, CNN’s senior business correspondent Ali Velshi. Thanks for being here.

Lester, let me start with you. Why have our food prices gone up so much?

LESTER BROWN, EARTH POLICY INSTITUTE: There are a number of trends that are operating here at the same time. One is 17 million people a year. And you don’t have to be an agronomist to know you get in trouble if you do that indefinitely. Second is incomes are going up. People around the world, maybe four billion people want to move up the food chain.

FOREMAN: So they’re buying more than moving up in the chain. What else?

BROWN: And third, and the big one in the last couple of years, has been the enormous shift of the U.S. grain harvest in the production of ethanol. The world demand for grain was growing about 20 million tons a year. Food, feed, and so forth. And then suddenly, the last couple of years, it’s jumped to about 50 million tons a year. Thirty million tons is grain going into ethanol.

FOREMAN: That’s corn being used for something other than food but to replace energy. Ali, do you buy those explanations, or is there something else at work?

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: Oh, unless he’s being — he’s very learned about this. He’s being extremely polite. It is a ridiculous policy to take a food that we were actually eating and turn it into a fuel for our cars when we have uncontrolled demand for gasoline.

The fact of the matter is it’s a good concept. Reducing your reliance on crude oil to make gasoline by using other things. Other things like waste products or maybe something that nobody ever eats. I don’t know. Maybe we can make oil out of Brussels sprouts or something.

But to take corn which is a staple crop — what it’s done is it’s resulted in causing the prices of other staple crops like wheat and rice, to also go up because there is no interchangeability amongst them. These are very important things. We’ve had record prices in wheat, in corn, in soybeans, in rice, and a lot of it is due to biofuels being done the wrong way.

FOREMAN: Well, Ali, I know you’ve already made enemies in the ethanol community and in the Brussels sprout community, but we’ll get back to that in a minute. Let’s look at some of these increases that we’re talking about here. If you haven’t seen them in your own stores, you can easily.

Look, eggs have gone up 34 percent, almost 35 percent in the past 12 months. White bread up more than 16 percent in the same period of time. Milk up 13.3 percent in that period of time. These are really the kind of prices that hit home on main items here, Lester.

Is there any solution to this? Let’s say you wiped out the ethanol subsidy and you said we’re not going to do that anymore. Well, that contributes to the energy problem and transporting all this food, producing it takes energy. How do we get out of this?

BROWN: Well, first of all, energy — ethanol is not the solution to our automotive fuel problem. If we converted the entire grain harvest into fuel for cars, it would satisfy maybe 16 percent of demand. That’s not the answer. I think the answer and it’s going to be still a couple of years away is plugging hybrids, running almost entirely on electricity.

FOREMAN: That will solve the energy issue, but what do we do about the food issue now? Because I think a lot of people out there are really worried that they’re going to seriously be looking at their grocery bill and saying I can’t buy things.

BROWN: Right. If we reduce the amount of grain going into ethanol substantially and quickly, it will begin to restore some stability in the world food economy including here in the U.S. I mean, right now, we are subsidizing the conversion of grain into fuel and being rewarded for that subsidy with soaring food prices.

Jacques Diouf, director general of FAO, blamed the food crisis primarily on the steady migration of rural populations to the cities, in turn affecting food production, said he was looking to a summit in Rome in the first week of June to address this as well as factors that had to do with the developed world, such as the diversion of farmland to produce biofuels and speculation in the futures markets. There is also some good news, the latest FAO report didn’t mention the U.S. and the EU with their huge biofuel subsidies programs. On a positive note, the latest appeals to governments to increase staple food production is said to bear its first fruits, contributing to a favorable global food production outlook. However “the expected price decline in many basic agricultural commodities during the new 2008/2009 season is likely to be limited, because of the need to replenish stocks and an increase in utilization.” The bad news is that vegetable oil prices are contineously shooting up, along with rising fossil fuel prices.

So far, the bottom line is: Biofuel is bad for the environment, ineffective to reduce CO2 emissions, and it has a negative effect on food supply worldwide. Biofuel doesn’t also contribute a great deal to solve the energy problem. As long as the use of ethanol and the like is dependant on huge government subsidies in developed countries, thus driving up prices of corn, wheat, vegetable oils and rice as staple food, it should not be regarded cleaner than fossil fuels. On the other hand, if subsidies are finally dropped and the demand for biofuels is primarily met by means of sugar cane, palm oil and cassava, even though this may put less pressure on food supplies in developing countries, it would make it almost impossible to save the remaining rain forests from exploitation for the huge land resources needed for such a purpose.