ASHOK B SHARMA
A special correspondent with The Financial Express
Indian Society For Sustainable Agriculture
Other work by author published by the Global Community
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World leaders to discuss bio-fuel use. Will Brazil support curbing bio-fuel programme to contain rising prices?
Rising prices may change India's stand at WTO
Assocham critical about FTA with China
World leaders to discuss bio-fuel use
Will Brazil support curbing bio-fuel programme to contain rising prices ? http://www.financialexpress.com/news/World-leaders-to-discuss-biofuel-use/297274/0
ASHOK B SHARMA
Posted online: Wednesday, April 16, 2008 at 2358 hrs IST
Bio-fuel programme across the world has become controversial as food crops used in its production have caused food prices to soar up and the use of non-food crops like jatropha has displaced food crops from cultivation and has also caused environmental problems. But Brazil basing on its decades of experience on use of ethanol as auto-fuel has now decided to take up bio-diesel programme in a big way.
By the end of 2004, Brazilian federal government launched the National Programme of Bio-diesel Production and Use (PNPB). It was planned that from January 2008, B2 blends will be mandatory across the country. In January 2013, this mandatory mix will increase to 5% of bio-diesel (B5). Blends with higher shares of bio-diesel or even pure bio-diesel (B100) can be used, but in this case authorisation by the Petroleum, Natural Gas and Bio-fuels National Agency is required.
The FAO has called a meeting of world leaders in early June to deliberate on the issue of rising global prices caused by the bio-fuel programme. The WTO mini-ministerial is slated to be convened in Geneva in May 19 to deliberate on reviving multilateral trade negotiations in the midst of rising food prices. It seems unlikely that Brazil, with its ethanol-based Economy, would support any view which would discourage bio-fuel programme.
Arnaldo Walter of the State University of Campinas says: "The 2% target for blending of bio-diesel in 2008 will be barely achieved and just a small share of production of raw materials will be based on family farmers and will occur in the poorest areas of the country. However, all drawbacks should be carefully analysed and the problems should be addressed properly. There is a pressure on the government to go for 5% blending of bio-diesel earlier by 2010, but based on the results so far achieved it seems risky to accept such pressures."
Walter was recently in India to participate in the fifth International Bio-fuel Conference in Delhi.
He mentions that the Brazilian government is very optimistic about largescale production of bio-diesel and knows that subsidies would be needed to support small farmers for growing bio-fuel crops. The farmers with large landholdings and big Companies are more assertive for faster implementation of the bio-diesel programme.
Brazil has successfully produced fuel ethanol at largescale for more than 30 years from molasses and subsequently from sugarcane juice. Brazilian experience on use of ethanol blended gasoline dates back to 1930s, but it was in 1975 that Brazilian Alcohol Programme (PROALCOOL) was created aiming at partially displacing gasoline in private transport.
The country was strongly dependant on imported fossil oil and gasoline was the main oil derivate consumed. In 1979 with the second oil shock, Brazilian government decided to enlarge PROALCOOL programme, supporting largescale production of hydrated ethanol to be used as fuel in modified engines.
Neat ethanol vehicles use hydrated ethanol, while anhydrous ethanol is blended with gasoline. The ethanol consumption has increased in Brazil with the high success of flex-fuels vehicles (FFVs) launched in early 2003 and more than 85% of the new vehicles in Brazil today are FFVs. FFVs can also run on hydrated ethanol.
In 1975-79, ethanol production was accomplished by new distilleries annexed to the existing sugar mills, while in 1979-85 many autonomous distilleries were set up. About $12 billion was invested to create the infrastructure for producing 15 billion litres of ethanol per year. The programme was initially heavily subsidised by the government. Later in 1990s subsidies were reduced on deregulation of the sugar industry.
Brazil today is the second largest producer of ethanol as US surpassed it in 2006. However, fuel ethanol in the transport sector is much higher in Brazil than in the US. Brazil exports ethanol to the US and European Union.
But ethanol fuel production in Brazil is still not without problems. The benefits are not equally distributed among stakeholders in the different regions of the country. Walter says: "There are still concerns regarding large-scale production of ethanol from social and environment points of view."
The world may be plagued with rising food prices on account of massive bio-fuel programme, but Brazil is determined to go ahead with its agenda....
Posted online: Monday , April 07, 2008 at 0255 hrs IST
New Delhi, Apr 6 In the backdrop of the rising global prices and the government resorting to drastic cuts in tariffs on many agricultural commodities, India's negotiating position at the farm talks in the WTO may be weakened.
The recent rise in global prices has completely changed the earlier scenario where the developing countries accused the developed world for depressing global prices through heavy subsidies and thereby minimizing the gains of Third World producers. Several factors are, however, responsible for the turnaround in the global situation. The reports of UNCTAD, UN ESCAP, OECD and other UN agencies have held massive bio-fuel programme in Europe and in the US as one of the main cause for the rise in global food prices.
The bio-fuel programme in the developed world backed by heavy subsidies has caused many farmers to cultivate crops for producing fuel rather than for food. The prices of bio-fuels have shot up in tandem with the fossil oil prices and the bio-fuel prices have had a spilling effect on food prices
The member of the Planning Commision, Abhijit Sen agrees with the view and says : "The government has reduced tariffs with the good intention of importing food at cheaper prices to combat the price inflationary trend in the country. But this may soften our negotiating position at the WTO as we have already begun reducing our tariff barriers. It now would be difficult for the developing countries to raise the issue that developed countries' subsidies depresses global prices. Many poor net food-importing countries are facing problems of importing food at high prices."
Another factor contributing to the rise in global food prices is the subprime crisis and the meltdown in the equity market. The investors are now shifting their investments to commodity Markets. Sen says : "The same thing is seen happening in India also."
However, at the global level there are few big corporate players who dictate the prices of food. Even the farmers in the developed world do not benefit from the price rise. For instance the Canadian Wheat Board paid farmers between $ 260 to $ 284 a tonne for various qualities of non-durum wheat, while the global prices peaked to over $ 250 a tonne on March 27, this year. In India farmers were paid Rs 850 a quintal while wheat was imported at Rs 1650 a quintal.
India has banned exports of some agro commodities and discouraged exports of other commodities and has reduced tariff barriers to facilitate cheap imports with a view to check the rising domestic price inflationary trend. But opening for imports at this stage would result in "importing inflation" when global prices are high.
The Chairman of the Central Organisation for Oil Industry and Trade (COOIT), Davish Jain has rightly pointed out that the major exporting countries very well know that the populous countries like India and China would import food at any cost to meet their needs and therefore would not hesitate to jack up prices. The same has been the case with vegetable oil imports. Thus faced with such a situation the India and the developing countries would need to find a suitable alternative way in handling global trade....
Posted online: Saturday , April 05, 2008 at 1941 hrs IST
New Delhi, April 5: One of the three apex industry bodies in the country, the Associated Chambers of Commerce and Industry (Assocham) has said that the government should consult industry association before signing free trade agreements (FTAs) with any country. Appropriate cost benefit analysis should be undertaken in terms of increase in net trade and improvement in employment, it said.
Assocham is particularly critical about the proposed FTA with China as that country has deliberately undervalued its currency to remain competitive.
In its study `India's FTAs and Indian Industry-2008' it said : "it is realized that in a globalised world Indian industry cannot shy away from international competition and it will be difficult to remain on crutches supported by the wall of high tariffs. But yes, if certain parameters are kept in perspective while starting negotiations on trade agreements with various countries and regions it may lead to a stronger and sustainable economic development in terms of improvement in employment and competitiveness."
The study called a careful preferential trade agreement (PTA) before a FTA where India has some inherent trade advantage with products on the sensitive lists having a reasonable timeframe so tat industry can gear up for competition. It cautioned that some countries with zero or low tariff rates have already suffered. Before initiating FTAs a level playing field in terms of access to infrastructure, market determined exchange rate and fuel cost should be determined.
The exports of raw materials should be discouraged and value added exports should be encouraged. Brand India should be marketed as provider of business solutions. Indian manufacturing business should overcome commodification of their products, the study said.
It urged the Reserve Bank of India to see that the changes in valuation of currency is gradual as sharp change in exchange rates could affect industrial exports. Banks should also make their clients (exporters) aware about currency hedging
Commenting particularly about the proposed FTA with China, the Assocham study said : "valuation of exchange rate has largely become market determined as also is linked to the strength of a country's Economy. That is fine so long as all countries follow economic principle in international trade so that there is a shared sense that most nations will benefit. But the joker in the pack, the undervalued Chinese currency, the Renminbi has put competitors including India at a disadvantage. Driven by an artificially cheap currency, China's leaders have staked their country's political stability on export-led job creation. Would other countries exports be blamed for destroying domestic jobs? Already China has turned from the world's largest steel importer to exporter and has a huge trade surplus with USA and obviously with India."
India with a higher tariff regime at about 12.5% may be called upon reduce its duty to the level of China at 6% in event of a FTA, which may cause problems to the industry.
Another concern was the growing India's trade deficit with China – from $ 506.74 million in 1994-95 to $ 1424.04 million in 2004-05, the study said. Regarding proposed FTA with Singapore, the study urged India to be very careful in dealing with exports from third country as Singapore being already open for imports from many countries.
However, the Assocham study favoured FTA with Bangladesh in terms of mutual benefit. ...