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India’s biofuel target risks food price row

India on Sept. 11 set an ambitious 20 per cent target for biofuels use within a decade, threatening to revive the food-versus-fuel debate just as global food prices stabilize to the relief of poor consumers and governments.

Prices of grains like rice and wheat have fallen from record levels in 2007 and early 2008 as fears of shortages have eased, largely due to bumper crops in major producing countries like India, the world’s second-biggest grower of the two staples.

Critics partly blamed biofuels for the earlier price spike, which had encouraged many countries, including India, to restrict exports of most grains to avoid shortages.

“An indicative target of 20 per cent blending by 2017 may be kept, both for biodiesel and bioethanol,” the government said in a statement.

India imports 70 per cent of the oil it consumes and has already asked oil firms to mix ethanol with petrol to five per cent of volume almost nationwide.

It aims to double that to 10 per cent from October 2008, when the new cane-crushing season begins.

World Bank economist Don Mitchell has said large increases in biofuels production in the United States and Europe were the main reason behind the steep rise in global food prices, which have now eased from their highs.

Benchmark rice prices in Thailand are at $735 per tonne, well below the $1,080-per-tonne level in April.

Analysts say any increase in the use of ethanol would encourage farmers to plant more sugar cane, leading to a fall in acreage of other commodities.

The jump in food prices helped drive inflation in many countries around the world. India’s annual wholesale inflation rate surged into double digits in early June.

In India, ethanol is made from cane, unlike in the U. S., where corn is the main source for the alternative fuel.

Drive or eat?

Greater use of biofuels will intensify the debate on the use of farmland for fuel in India, and encourage farmers to reduce grain cultivation for food, said T. K. Bhaumik, an economist with Assocham, a leading business chamber.

“Land is not elastic. If there is more pressure to grow oilseeds or corn to derive biofuels and farmers get a good price for them, they will obviously neglect grain production,” he said.

He said fuel consumption in India was rising about seven per cent annually, requiring a proportionate increase in blended biofuel.

“Where will it come from? Even a rise in agricultural productivity will fail to match the requirement,” Bhaumik said.

While the use of ethanol has been introduced successfully in India, the use of biodiesel has not taken off and many Indian companies have shelved plans to invest in related projects.

Analysts say India consumes 40 million tonnes of diesel a year, way above annual petrol demand of eight million to nine million tonnes, and in 2003 announced plans to replace around five per cent of its diesel consumption with biodiesel made from jatropha.

But ministers have differed over subsidies for biodiesel, obstructing progress on a new policy for the sector.

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