New Delhi: Use of bio-fuels may be a good idea to help protect environment, but it is putting pressure on consumers’ budget by driving the prices of agricultural products and food items to higher levels, a new study says.
Bio-fuel is already taking its toll on food price inflation in the global market and the impact would soon start reflecting into the Indian markets, analysts at the research arm of international banking major Citigroup said in a report.
“The growing use of bio-fuels has a serious disadvantage: it is driving up the prices of agricultural commodities and thus taking its toll on food price inflation,” it said.
The prices of corn and wheat, the key raw material for ethanol, have already reached their highest levels in over a decade this year.
“This is despite expectations of strong global grain production in FY08 which in turn has impacted prices of processed goods,” the report said.
To minimise the domestic impact of rising global prices, India would need to enhance agricultural production and productivity, the analysts suggested.
“We could see primary product prices in India continue to face pressures unless adequate measures to ramp up production are taken,” the Citigroup report said.
Bio Fuels are fast-becoming a substitute of petroleum as transport fuels. Faced with the challenge of growing energy dependence and curbing green house gas emissions (GHG), a number of countries have begun to implement the use of alternative fuel sources.
Many countries, including Brazil and the EU, provide subsidies to their farmers to encourage them to grow crops that will aid the development of alternate fuels. These countries have also imposed regulations requiring a shift towards greener fuel.
The EU recently directed member countries to use 10% bio-fuels for transport by 2020, while the US aims to use 132 billion litres by 2017, it said, adding that EUs new rules would need the entire regions’ rapeseed oil production as feedstock.
However, taking a cue from developed countries, the Indian government also mooted a rise in ethanol blend with petrol to 20% by 2012, though there is little progress on this front as of now. Oil and sugar companies have failed to arrive at a consensus on pricing, it said.
India also proposes to use bio-diesel produced from jatropha which is grown on waste-lands, the report said.