Sugar as biofuel in the Philippines may not be as “sweet” as promised

In an article published in the Philippine Agricultural Scientist, UPLB economist Prof. U-Primo E. Rodriguez and Dr. Liborio Cabanilla, dean of the College of Economics and Management, noted that using sugarcane as source of energy may have adverse effects. Both examined the potential implications of using sugar as biofuel feedstock, particularly on the country’s agriculture and food security.

Sugar is an important commodity in the Philippines, a major input in food processing industries. In 2007, the Department of Agriculture reported that by 2001 about 8.5 M metric tons of sugarcane will be needed to fulfill the mandated blending of gasoline with 10% ethanol. This represents around 37% of the total sugarcane produced in the country in 2005.

Using a Computable General Equilibrium (CGE) model, the researchers found that there would be several implications to the agricultural and food processing sectors if sugar is to be used for biofuel production.

General implications

“Devoting sugarcane as biofuel feedstock would probably raise the average domestic prices of agricultural, fishery and forest products, which in turn will make production costs higher and therefore increase prices of food products in the market,” Prof. Rodriguez stated.

They estimated that while value added and employment will grow in the agriculture, fishery and forestry sector, it will be the opposite for the food processing sector.

All in all, this would affect people’s spending behavior. Consumption is projected to fall by 0.18%. Prof. Rodriguez also added that agricultural, fishery, forest and food products export will decline.

Specific impacts to the sugar industry

According to the research’s simulation, there are significant impacts which would greatly affect the sugar industry. First would be the increase of about 18.5% of sugar prices due to the stimulating demand for sugarcane. This would induce significant increases in the value added and employment in the sugar industry.

The big expansion of the sugar industry, however, will just be the only reason for the general expansion of the agriculture, fishery and forestry sector. Rodriguez explained that the expanding sugar industry will affect industries such as corn, livestock and poultry, probably due to the possible allocation of resources to sugar planting.

Simulation results indicate also that some economic activities such as sugar milling, petroleum refining and mining will contract.

More analysis needed

While the research results showed that sugar for biofuel will have adverse effects on the economy, Prof. Rodriguez recommended more in-depth studies should be pursued to get a better informed assessment. He further added that economists should also focus on the other dimensions of economic development and environmental impact.

“Although our CGE model have provided sound economic frameworks for analysis, a more rigorous economic evaluation of the food vs. fuel issue would definitely need other studies using complementary analytical and quantitative tools,” Prof. Rodriguez concluded.

For reference:

Prof. U-Primo E. Rodriguez
College of Economics and Management
University of the Philippines Los Baños
Telephone: 049 536 2505
Telefax: 536 3641
Email: uprime@gmail.com