Neels Blom and Mathabo Le Roux
7 December 2007
Johannesburg — THE government has radically scaled back plans for an ambitious biofuels roll-out, citing concerns over food security and the effect of climate change on the agricultural sector.
The move deals a hefty blow to hopes that the strategy would substantially reduce SA's dependence on imported oil and create tens of thousands of new jobs.
Production targets in the new strategy, ratified by the cabinet this week, have been reduced from 4,5% to 2% of total motor fuel consumption and the government has opted to exclude maize as feedstock for biofuels, due to food security concerns.
Maize producers reacted with dismay to the decision to exclude maize from the strategy, saying it would have the opposite of its intended effect. Grain SA chairman Neels Ferreira said the exclusion of maize at any stage of the industry's development was a mistake, and that it would not ensure food security or decrease domestic food prices.
Minerals and Energy Minister Buyelwa Sonjica said alternative feedstocks for biofuel would include oilseed for biodiesel production and sugar beet and sugar cane for ethanol production.
Announcing the new approved strategy yesterday, Sonjica was inexplicably silent about ambitious targets in the first draft of the strategy for employment creation. The initial draft estimated that 55000 jobs could be created. But stakeholders have been sceptical about the estimations, projecting that the job-creation potential of the new sector would be closer to 4500.
Motivating the roll-out of the strategy, Sonjica steered clear of the issue of employment, saying the strategy was a response to the security of energy supply challenge and rising crude oil prices, and part of SA's promotion of renewables.
The biofuels strategy forms part of the trade and industry department's broader industrial policy framework to boost the manufacturing sector. Apart from aims to boost growth, one of the primary targets of the industrial policy is to swell jobs.
Commentators were, however, also sceptical about the state's motivation on security of energy, saying the 2% production target would be trivial in mitigating SA's dependence on oil.
The minister was faulted on mooting biofuels as a viable response to climate change.
"The key issue is that biofuels make absolutely no difference to climate change. Benefits have been shown to be marginally positive but actually neutral, and the government cannot rely on biofuels to form part of its response on climate change," said Mark Botha, co-director of the conservation unit of the Botanical Society.
"We need to move with urgency on vehicle emissions and alternative forms of transport. The downward revision of production targets is a relief. It makes sense to go into biofuels more carefully and thoughtfully," he said.
The new plan is likely to dampen the exuberance over biofuels and the government also poured cold water on expectations that it would help subsidise biofuels production.
Stakeholders have argued that biofuels production would not be economically viable without incentives. Sonjica yesterday announced that the fuel levy exemption for biodiesel had been increased from 40% to 50% while bio-ethanol would be completely exempt.
It became clear at the briefing that government support would not be extended beyond the exemption of biofuels from fuel surcharges.
Grain SA's Ferreira warned farmers may switch to other crops, which could threaten food security..
"The economic reality is that farmers will plant what is profitable; whether it goes to ethanol or food is immaterial. If SA produces a maize surplus, farmers will plant alternative crops, or nothing at all, as happened in the previous season."
It is that which could be a threat to food security, he said.
"SA readily produces a maize surplus that causes the price to drop below what is economically viable for farmers. We can expect an average harvest of 12-million tons a year against a stagnant domestic demand of about 9-million tons. The surplus of 3-million tons must be exported into a global market where competitors are subsidised.
"The effect is that prices decline to export parity, which means the whole harvest must then compete against subsidised harvests elsewhere in the world.
"The best for SA would be if the entire harvest was consumed domestically, as food or as feedstock for ethanol, to avoid us having to accept lower, uneconomic prices," Ferreira said.
Efficient Group economist Nico Kelder said it was it was unlikely that the government's decision would depress the maize price, but that if the minister had specifically included maize in the biofuel plan, the price would probably have gone up.
The price of yellow maize on the JSE's future's market Safex was at R1 835/ton for January contracts and at R1 490/ton for July contracts.
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