Global Biofuel Production and Poverty in China

Posted on October 24, 2011

This study seeks to assess the future impacts of biofuel production from the world’s major biofuel producers (the US, Brazil and the EU) over the next decade on poor households in one country—China.  Using two modeling platforms created to account for: (a) the global interactions of regional biofuel and food markets; and (b) the supply, demand and trade inside China in response to shocks in world markets, the analysis aims to provide answers for the following questions.  First, how will the rise in demand for biofuels affect food prices, production and trade at a global level?  Second, how will the development of global biofuels affect prices, production, trade and the unskilled wage in China?  Thirdly, what are the distributional impacts of these global and domestic market changes from biofuels among different income and regional segments of China’s food economy?

Biofuels production levels at the mandated requirements, as set out by the domestic governments of the largest producers, will increase both prices and output for the major biofuel feedstocks.  Demand from biofuel plants, in fact, is strong enough that domestic users procure enough of the output that exports fall as less of it is going onto world markets.  If market conditions for biofuel production are favorable (higher energy prices and easy substitution between biofuels and petroleum-based transport fuels), then these government mandates are not binding as processors of biofuels produce at levels far greater than the requirements.  Thus, there can be significant impacts from biofuels on global agricultural markets even without direct government involvement.

The rising commodity prices globally under either the market or mandate scenarios are transmitted, albeit imperfectly, into China’s domestic food economy.  These increase in prices of all crops and livestock commodities inside China, however, are associated with different impacts on production.  For those crops that are being used for feedstocks internationally (maize) or are close substitutes for feedstocks (soybeans), production rises sharply.  Imports also fall significantly.  Interestingly, such dynamics help China to realize its self-sufficiency goals more fully.

Another unintended benefit of the increase in global biofuel use is the impact on Chinese income distribution.  In a country like China in which the poor all have access to land and which earn most of their income from agriculture (cropping), China’s farmers—especially the poor—benefit from biofuels.  In response to higher prices, producers in China, especially poorer producers in northern regions of China increase production. Far from being hurt, incomes rise for these poor farmers.  In fact, poverty is nearly eliminated in northern regions of China.

Jikun Huang, Jun Yang, Siwa Msangi, Scott Rozelle, Alfons Weersink

Read the complete Working Paper by downloading the PDF:

Global Biofuel Production and Poverty in China