AGRICULTURAL COMMODITIES AS BIOFUEL FEEDSTOCK: IMPACTS ON PHILIPPINE AGRICULTURE, FOOD SECURITY, INCOME DISTRIBUTION AND

3. Why sugar and coconut? Well-known sources of biofuels Occupy an important place in RP agriculture Almost 1/5 of the total value of production of crops in 2006 Close to 1/3 of the total land area devoted to crops Account for more than 4/10 of the exports (value) of agro-based products

4. METHODOLOGY The analysis uses a Computable General Equilibrium (CGE) model of the Philippines Industry disaggregation Agriculture, Fishery and Forestry : (a) Palay, (b) Corn, (c) Sugar, (d) Coconut, (e) Other crops, (f) Livestock and poultry, (g) Other AFF Food processing: (a) Rice and corn milling, (b) Sugar milling, (c) Other food, (d) Coconut oil and related products Other industries: (a) Mining, (b) Non-food manufacturing, (c) Petroleum refining, (d) Services Calibrated to the 2000 Input-Output table of RP

5. Flows

6. Experiment Baseline Crude petroleum (integrated in the model in the Mining industry) used by the Petroleum refining industry to produce gasoline and diesel Experiment Part of crude petroleum inputs in Petroleum refining is replaced by coconut (for biodiesel) and sugar (for bio-ethanol) Magnitude of the �shock� Based on Republic Act 9367 2% of biodiesel in diesel 10% of bio-ethanol in gasoline

7. IMPACTS ON AGRICULTURE AND FOOD PROCESSING AS A WHOLE Agriculture � increase in all variables except exports Food processing � decrease in all variables except imports and domestic prices

8. Implications Promoting biofuels, while raising agricultural production, tends to hurt the food processing sector Promoting biofuels tends to raise the prices of agriculture and food processing In the case of feedstock, this is due to higher demand (new user: biofuels sector) In the case of non-feedstock agriculture and food processing, this is due to higher input prices (especially, wage rates and agricultural inputs)

9. Implications�continued Promoting biofuels tends to reduce exports and raise imports of agriculture and food processing. Combined, this tends to worsen the trade balance! Despite contrasting results for agriculture and food processing, the weighted average of the impacts on consumption is -0.20%. This tends to support concerns regarding biofuels and food security. While not presented in the table, the simulation results actually indicate an increase in household incomes (0.15%). This means that the drop in consumption is explained by higher prices.

10. IMPACTS ON SPECIFIC INDUSTRIES IN AGRICULTURE AND FOOD PROCESSING

11. Sugar and Coconut These industries experience the largest increases in production and prices. Result is expected their use as a biofuel constitutes an increase in demand Despite higher production, consumption falls because of the increase in prices.

12. Largest decline in production is for Sugar Milling and Coconut and related products These are industries which rely heavily on sugar and coconut as inputs. Higher prices of sugar and coconut translate to higher production costs for these industries. This in turn leads to higher prices which cause a decline in demand. In table: shown by decline in consumption Not in table: lower exports and higher imports

13. Within agriculture, most of the other commodities decline (Palay, corn, other crops, livestock & poultry) Partly explained by higher production costs and labor being drawn towards the Sugar and Coconut industries Note: The model assumes that capital (which effectively includes land in the model) is sector-specific. This highlights the role of changes in (relative) prices and incomes in explaining the impacts of using agricultural commodities as feedstock. Land need not move from one activity to the next for the promotion of biofuels to hurt the rest of the agricultural sector.

14. Impacts on income distribution It was earlier mentioned that promoting biofuels leads to a 11% increase in household incomes � who benefits the most from this increase? The model results can be projected to 10 household groups � poorest (decile 1) to richest (decile 10) Each household has 3 sources of income Agricultural Wages Non-Agricultural Wages Non-Wage Income

15. General findings: Agricultural wages rise by 1.47% Wage rate higher by 0.2% Agricultural employment rises by 1.27% - mostly due to Employment in sugar (~ 43% increase) Employment in coconut (~6.4% increase) Non-agricultural wages do not change Wage rate up by 0.2% but non-agri employment falls by about the same proportion Non-wage income rises by 0.12% Higher rate of return to fixed factors again to sugar and coconut. Fixed capital is more productive in sugar and coconut because employing more labor Proportion almost the same as a employment change in these sectors

16. Impacts on household income: All income groups benefit but the largest gain is to poorer income groups

17. Impacts on pollution emissions Links: Outputs for each industry affect pollution emissions Emissions considered in the analysis: BOD5, CO, N, NOX, oil, P, PM, SOX, suspended solids (SS), total suspended solids (TDS) and volatile organic compounds (VOC)

18. 18 Results mixed 4 emissions higher � BOD5, SS, P, N 7 emissions lower Largest increase is for SS. Also note increase in 2 water-related emissions � SS and BOD 5 Largest decline in emissions is for TDS Also note decline in air-related emissions � CO, PM

19. 19 Sugarcane and coconut are the largest sources of the increase in SS emissions 0.89 (0.58+0.31) percentage points of the 0.77% increase Other industries just weaken the overall impacts Their share in baseline emissions is small (about 16%). Suggests the relatively large increase in emissions (due to output change) from these industries.

20. 20 While the share of coconut and sugar in SS emissions is small, it is the largest among the different emissions. Moreover, emissions for which the share of coconut and sugar in total baseline emissions is relatively large (i.e., BOD5, P and N) also show an increase in emissions.

21. CONCLUDING REMARKS While promoting agricultural commodities as feedstock for biofuels tends to benefit the agricultural sector as a whole, it has the potential to hurt other industries within the agricultural sector. Promoting biofuels also has the potential to hurt the food processing sector.

22. The current analysis tends to support the notion that there is a trade-off between biofuels and food security. Narrow perspective: Lower output of food processing and agricultural commodities used as food (palay, corn, other crops, livestock & poultry) Broader perspective: Potential decline in consumption spending. The analysis points to an improvement in income distribution. Incomes of the different household groups rise but the largest increases are for the poorer income groups.

23. Mixed results for emissions Expand for emissions in which the shares of the feedstocks in baseline emissions are highest � BOD5, SS, P, N May see decline in air-related pollution emissions but seeing an increase in water-related pollution emissions Study actually supports assertion that the impact of using biofuels on the environment is not as clear as earlier envisioned.

24. Maraming Salamat!