Bioethanol in the Philippines (Research Paper)

1

Introduction Bioethanol is a type of renewable energy (RE) that can be manufactured from agricultural feed stocks such as sugarcane, potato, cassava and corn. Ingram (2012) stated that the gasoline is blended with ethanol to lessen the use of irreplaceable fossil fuels and to have a cleaner and sustainable domestic fuel. “E10 means 10% ethanol which is widely operated in car engines on the road today” (Dunn, 2007).There has been significant arguments about the utility of bioethanol replacing gasoline in the Philippines. Due to the massive land requirement of crops for the production of ethanol, along with the energy and pollution balance of the production mainly from corn, prices of food are increasing. Currently, there are developments in producing and commercializing cellulosic ethanol that might alleviate some of these problems. The Department of Energy (DOE) is the central agency in authority for the Philippine Biofuels Program. Its plan for the country is defined in the Philippine Energy Plan 2012-2030 (PEP 2012-2030) and National Biofuels Plan (NBP 2013-2030). USDA (2013) stated that the PEP 2012-2030 reflects the Philippine government’s (GPH) mission to ensure the delivery of secure, sustainable, sufficient, affordable and environment-friendly energy to all economic sectors. In 2007, the Philippines became the first country in Southeast Asia to have biofuels legislation when the Biofuels Act was signed where it aimed at “reducing dependence on imported fuels, enhancing the quality of the environment, and creating opportunities for countryside development”(USDA, 2013). The challenge facing the country today is the availability of feedstock and the processing facilities needed to meet the annual demand of ethanol by the NBP.

2

Statement of the Problem Ideally, the biofuel production in the Philippines should be able to alleviate the dependency to foreign fuels, to attain sustainable domestic fuel (Ingram, 2012) and to provide cheaper and more environmental-friendly alternatives to fossil fuels (DOE 2015). Using available information, this study dwells on the relationship of biofuel production on food security particularly among less developed countries, in this case, the Philippines. Specifically, this study seeks answer to the following research questions: 1. What is the background of the development biofuel in the Philippines? 2. What is food security? 3. What are the motives of the Philippine Government in producing biofuel? 4. How does biofuel production affect the production of food in Philippines? 5. What is the relationship between biofuel production and food security in the Philippines?

Objective of the Study To explore the impacts of biofuel production on the food security in the Philippines, as guided by the abovementioned problems, this study mainly aims to: 1. Determine the background of the development of biofuel in the Philippines. 2. Define food security. 3. Determine the motives of the Philippine Government in developing biofuel. 4. Identify the effect of the production of biofuel to the production of food in the Philippines. 5. Ascertain the relationship of development biofuel and the food security in the Philippines.

3

Methods To acquire the necessary data for this study, secondary information were used. Related literatures from books, articles and journals were also reviewed to gather data for this study. The use of internet in researching has been the prevailing mode of collecting facts. A study conducted by the Dean of College of Economics and Management, U-Primo E. Rodriguez, and a professor of the Department of Economics, Liborio S. Cabanilla from the University of the Philippines Los Baños shows the situation of food security affected by the production of biofuel in the Philippines.

Results and Discussion This study basically aimed to explore the relationship of biofuel production on the food security specifically in the Philippines. It is divided into three major parts: Background of Biofuel Development in the Philippines, Definition of Food Security and Motives for Biofuel production. The last sections of this paper will discuss some of the ideas about the relationship of biofuel production to the food security from other countries.

Background of Biofuel Development in the Philippines The development of biofuel has been expanding rapidly because of the increasing prices of crude oil, desires of countries to be independent to foreign energies and the alarms about climate change. Dong (2007) explained that as developed countries like United States expands their production of biofuel, developing countries like Philippines are expanding their biofuels industry as well in order to power their growing economies. It has been declared that biofuel is

4

the alternative fuel of the future that gives new opportunities to small-scale farmers and it emits cleaner energy. Written below is the implementation of the Biofuels Act in the Philippines. Biofuels Act in the Philippines. On January 12, 2007, former President Gloria Macapagal Arroyo signed the Republic Act 9367 or the Biofuels Act of 2006 which took effect on February 16, 2007. The law is expected to bring numbers of benefits to the country because the country is a very good location for investment along with the strong government support and the availability of land and technical manpower in distillery operations (Halos & Tamara, 2007). Republic Act 9367.An act mandates the government to reduce or decrease the dependency of Philippines to foreign and imported fuels, to phase out the use of harmful gasoline additives and to create an incentive scheme. With the creation of a National Biofuel Board (NBB), it shall monitor the Biofuel Program and ensure if the supply of sugar is enough to meet domestic demands. Still, developing countries faces bigger problems than developed countries because developing countries still need to address the food security issue when they develop biofuels. The development of biofuel has affected every aspect of food markets and prices in both domestic and international markets. “As more food grains will be used to produce biofuels, food grain carryover stocks will remain tight, and average grain prices will increase. Moreover, these price increases also increase the feed cost for livestock”(Dong, 2007).

Food Security The definition of food security in this paper will follow the context of Food and Authority Organization “A situation that exists when all people at all times have physical, social and economic access to sufficient, safe and nutritious food that meets their dietary needs and

5

food preferences for an active and healthy life (FAO 2002, The State of Food Insecurity 2001)” (Cabanilla & Rodriguez 2007). In the changing perception about food security, the performance of the world food system has been an important factor to be considered. Dawe (2006) indicated that the world has been capable of producing enough food except for the supply disturbances brought about mainly by bad weather. The definitions of food security with economic access are very applicable which suggests that income generation is a key to food security. (Figure 1) shows the Philippines Gross Domestic Product per capita which means that the total income of a country’s production and services within the country by its nationals and foreigners is divided by the total number of population in the Philippines. We can observe that the GDP from 1995 to 2014 has an increasing trend. This graph shows that the income of every Filipino is enough to address food consumption given that all factors remain constant.

Figure 1. Philippines GDP per capita 1700 1600 1500 1400 1300 1200 1100 1000 900 19951996199719981999200020012002200320042005200620072008200920102011201220132014

Source: tradingeconomics.com

6

Motives for Developing Fuel Ethanol Production This section will be divided into two parts. In the first section, the increasing consumption and the dependency to imported fuels will be discussed. Then, income opportunities to rural households will follow. Increasing consumption and dependency to foreign fuel. Fossil fuel resources are decreasing daily. As a renewable energy, biodiesel has been receiving increasing attention because of the relevance it gains from the rising petroleum price and its environmental advantages Philippines consumption of fuel has been increasing nowadays because vehicles are also rapidly increasing. In 2006, the consumption relatively decreased due to the typhoons Milenyo, Paeng and Reming which ravaged the country and destroyed roads and vehicles (See Figure 2). However, 2007 consumption boosted up because of the immediate recovery from the downfall which is driven by the help of the government by pumping P3 billion into irrigation projects and post-harvest facilities in an effort to further boost farm yields and minimize crop wastage arising from inadequate storage facilities(SEPO, 2007). Figure 2. Road Sector Diesel fuel consumption (kt of oil equivalent) in Philippines 5000 4800 4600 4400 4200 4000 3800 3600 3400 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

7

According to the Department of Energy, a chunk of Philippine gasoline requirement must be imported due to low refinery output in the country. From their data, it shows that the production of crude oil by the country barely meets the over-all demand. If we take a look at the last row, we can see that the total amount of fuel that is produced in the country only covers 63% of the total demand for fuel resulting to a shortage of 37% (Refer to Table 1). With the scarcity in gasoline, the country remains an “import dependent country” when it comes to crude oil.

Table 1 Oil Mix

LPG

Percent share on total production 6.7%

Production (in thousand barrels per day) 12.3682

Percent share on total demand 11.9%

Demand for gasoline (in thousand 34.7123 barrels per day)

Premium

13.6%

25.1056

18.8%

54.8396

Regular

5.5%

10.153

4.1%

11.9597

1.8067

Avturbo

9.0%

16.614

9.8%

28.5866

11.9726

Kerosene

1.2%

2.2152

1.0%

2.917

0.7018

Diesel

37.4%

69.0404

41.8%

121.9306

52.8902

Fuel Oil

19.6%

36.1816

11.8%

34.4206

-1.761

185 Others

7.1%

13.1066

0.8%

2.3336

-10.773

Total

184.7846

291.7

Shortage to be imported in thousand 22.3441 barrels per day (supply less 29.734 demand)

106.9154

O Others Source: Department of Energy

Income Opportunities to Rural Households. One of the initial goals of China’s biofuel development is to raise rural income. Philippines also indicated in the Biofuel Act that it can also help the small scale farmers in increasing their income and there are bigger opportunities

8

presented for the farmers. The following tables will show summary to the initial findings for the farm level analysis. Data are taken for are interviews with farmers in Laguna, Philippines (Cabanilla and Rodriguez, 2007). Interviews with scientists in the University of the Philippines at Los Baños suggest that profits become positive after the third year of the implementation of the program. Farm operators will earn Php 5,460.00 per hectare per year, on the third year and additional employment equivalent to 40 man days per hectare will be generated (See Table 2 and 3).

Table 2. Comparative costs and Returns of biodiesel per feedstock (pesos per hectare) Items

Value*

Total Cost

24,610.00

Cost of producing a ton

1,640.67

Cost of producing a kilogram

1.64

Gross Return

37,500.00

Net Return**

12,890.00

Net Profit-Cost Ratio (%)

0.52

Net Present Value (NPV)

5,224.73

Table 3.Comparative costs and returns of staple food crops ( pesos per hectare per cropping) Item

Rice

Corn

Variable Cost

11,395.00

18,600.00

Labor

5,850.00

10,560.00

9

Material Inputs

5,545.00

7,950.00

Fixed Costs

6,537.78

9,212.00

Total Costs

17,932.78

27,812.00

Gross Return

22,218.00

38,250.00

Net Return

4,285.28

10,438.00

Net Profit-Cost Ratio (%)

0.28

0.38

Source: The Food vs Fuel Issue: Case of the Philippines Feedstocks The Biofuels Law stipulates mandatory mixing of bio-ethanol and biodiesel in domestically consumed gasoline and diesel respectively. On 2007, the initial requirement of mixture is 1% for biodiesel which will become 2% in 2010 and for bio-ethanol, required mixture is 5% which will increase to 10% in 2010. In order to achieve these targeted mixtures, there is a high demand for feedstock. Coconut oil and sugarcane are the preferred biodiesel and bioethanol feedstocks in the country because these are the crops that suits to blend into locally distributed diesel and gasoline. Because of the increasing demand for feedstock, there are emerging opportunities for the small-scale farmers in rural areas. This gives a positive impact to the income of rural households. There are currently five feedstocks being promoted for the program namely coconut and jatropha for biodiesel and cassava, sugarcane and sweet sorghum for bioethanol. However, jatropha and sweet sorghum are not yet produced in the country. Sugarcane is widely produced in Negros, Luzon, Panay and Mindanao. Commercial production of ethanol from sugarcane will help the country diversify its fuel portfolio and ensure its energy security.

10

Relationship of biofuel production on food security At a recent biofuels conference in Brussels, European Commission President Jose Manuel Barroso said that to meet energy needs and to lessen carbon dioxide emissions, the European Union (EU) had set targets of 20% and 10% biofuels in vehicle fuel by 2020. This suggests that there is a larger and greater amount of feedstock needed to meet the overall demand for biofuel. In the United States, they have made plans to increase the use of biofuels for the coming years. This action could help decrease global warming but experts warn that with no proper oversight, it could result to an increase in world hunger and poverty (Boddiger, no date). Rosen and Shapouri (2007) explained that for highly import-dependent or highly foodinsecure countries, any decline in import capacity stemming from rising food prices can have challenging food security implications. In the Philippines, government policy makers have equated food security to self-sufficiency in rice and corn-two major grains produced in the country. The production of crops used as staple in the country has been continuing to increase but in a slow manner as what we can observe in Table 4.

Table 4. Palay and Corn: Volume of Production

Palay

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

14.60

15.326

16.24

16.81

16.266

15.772

16.684

18.032

18.439

18.967

5.253

6.082

6.736

6.928

7.034.

6.376

6.971

7.407

7.377

7.770

(million)

Corn (million)

Source: bas.gov.ph

11

From a technical point of view, crops used for biofuel production does not really compete for land with rice which is normally grown in flooded condition except in upland rice. However, as the demand for feedstock for biofuel production increases, changes in relative prices may tap off resources that are allotted for food production. As what is shown below in the Bioethanol supply-demand outlook (in million liters) from 2013 to 2030 (Table 5), we can observe the increasing demand for gasoline. Table 5 Bioethanol Supply-Demand Outlook ( in Million liters) 2013-2030 Year

Gasoline Demand

Supply Requirements

3813.18

Bioethanol Blends (Targets) 10%

Fuel Displacement

381.36

Required Volume for Importation 248.36

2013 2014

3839.31

10%

383.92

250.92

383.93

2015

3818.61

10%

381.84

169.44

381.86

2020

4328.87

10%

873.00

865.70

2025

4712.28

20%

936.00

942.45

2030

5084.05

20%/85%

1024.00

1016.80

381.36

If we compare the data of the production of food with the estimated amount of biofuel produced, we can observe that biofuel has greater growth rate than in food. If this happens in the future, Philippines will surely experience food scarcity because the land area is fixed thus, producing greater biofuel means that there is deduction in food production or vice versa. These problems must be properly addressed in order to make the biofuel program sustainable and of course, food supply can be maintained.

12

Conclusion The production of bioethanol might be for the benefit of everybody, but as what we can observe, the government did not able to sustain and meet the annual demand of ethanol by the NBP.USDA (2013) articulated that the “Philippine ethanol production is expected to increase through 2015” though there are still some concerns that can inevitably make the output fall short of demand such as inadequate competitiveness, investments and plant/refinery capacities. With the population of the Philippines now at 101 million, there is also a corresponding increase in demand for goods and services. As the law of supply and demand states that when the supply is decreasing, demand for that certain good will increase, supply of crops consumed as food will decrease and that will result to food insecurity. To be fair, no one is blaming the rapid price increases solely on biofuels- hunger and malnutrition was widespread before the biofuel boom began. It just so happened that the program implemented by the government that could have been the answer to the problem in fuel supply unfortunately gives also a negative feedback in food security.

Recommendation Establish ethanol refineries in local areas For the resolute target to be met there must be changes in the structure of the production in order to make investments in ethanol refinery construction attractive. Financially supporting the construction of refineries can really boost the production of the ethanol that can lead to the attainment of the demanded amount of ethanol produced every year.

13

Having a balanced production of biofuel relative to food production might help Price of locally produced bioethanol can be much lower compared to imported bioethanol if local supply of ethanol is sufficient for the normal needs of the companies. Promote efficient utility of domestically produced fuel. In order to make the fuel dependency of the country sustainable, conducting awareness program for the people about how biofuels are produced and how does it affect our food security in order to inform them that they have to help conserve energy. Teach them to use the biofuels efficiently by not using it in useless and careless ways.

14

Reference/s USDA, (2013). USDA foreign agricultural service gain report. “Philppine Biofuels Situation and Outlook”. Cabanilla L. & Rodriguez U.P. The food versus fuel issue: Case of the Philippines. Vol. 5. Issue 1/2. P.68. Environmental Health Perspectives, (2008). Spheres of influence. “Food Versus Fuel; Diversion of Crops Could Cause More Hunger”.Vol. 116. Number 6. Rosen S. & Shapouri S., (2007). Rising Food Prices Intensify Food Insecurity in Developing Countries. Vol. 6. Issue 1. Dong F., (2007). Food Security and Biofuels Development: The Case of China. Bank, (2015). The Pros & Cons of Ethanol Biofuel. Globalpost; America’s world news site. Retrieved from http://everydaylife.globalpost.com/pros-cons-ethanol-biofuel-29881.html Dunn, (2007). Ethanol as fuel. Ethanol: How the Fuel is Produced, Growing Corn and Other Feedstocks, and More. Retrieved from www.treehugger.com/cars/ethanol-how-the-fuelis-produced-growing-corn-and-other-feedstocks-and-more/page2.html Cantos, J. & Dixon, R. (2012). Impacts on bioethanol on gasoline prices in the Philippines: an econometric analysis. Mitigation and Adaptation Strategies for Global Change, 19(1). Retrieved from link.springer.com/article/10.1007%2Fs11027-012-9422-2 ISAAA, (2015). Brazilian company plans to build ethanol facility in the Philippines. Crop Biotech Update. Retrieved from www.isaaa.org/kc/cropbiotechupdate/article/default.asp?ID=11208

15

Ingram, (2012). Ethanol in your gasoline tank: the pros and cons. Green car reports. Retrieved from www.greencarreports.com/news/1077734_ethanol-in-your-gasoline-tank-the-prosand-cons Green The Future, (2008). Ethanol: Pros and cons. Retrieved from greenthefuture.com/ETHANOL_PROSCONS.html Trading Economics (2015). Road sector diesel fuel consumption in philippines.