The Bioenergy Strategy commits the UK Government to further work to investigate the merits of temporarily flexing or otherwise relaxing biofuels mandates at times of agricultural price pressures. The current paper presents work by Defra analysts to explore some of the potential implications of this idea.
However, the ideas presented in this research need to be explored in greater detail and as yet the Government has not taken a firm view on its conclusions. It suggests that grains and oilseeds produced for use in biofuels have a role to play in enhancing food security if they were allowed to flow into animal feed or human food markets during temporary spikes in the price of agricultural commodities. Currently this is strongly discouraged from happening by legal requirements to blend biofuels with conventional transport fuel (often called biofuels mandates or blending obligations), but temporarily relaxing these requirements could allow agricultural markets to work more efficiently and reduce the size of a price spike.
It says that a system of flexible mandates would in effect create a ‘virtual grain store’. Biofuels mandates have led to increased agricultural production relative to a state of the world where there are no biofuels mandates - this extra supply could follow market forces onto food or animal feed markets during a price spike, if the mandates allowed it. Research carried out by the UK Department for Environment, Food and Rural Affairs (Defra) shows that up to 15% of a hypothetical spike in the price of “coarse grains” could be avoided if the European Union removed its biofuels mandate at the same time as prices started to spike (coarse grains include maize, barley, oats etc.). The work also finds that similar action in the US could avoid over 40% of a hypothetical spike in coarse grain prices.
To read the report see here.