Given the volatility of world oil prices and the recent all time high, which increased their popularity, bio-fuels have received a great deal of attention globally. The central question in here is whether this will have a positive or a negative impact on smallholder farmers and people living in rural areas, as more agricultural land will be used for biofuels production? While some designate it as a crime against humanity, some others have argued that a greater production of biofuels will not necessarily be harmful for the poor and that they can become more food secure with the adoption of proper production technology.
Ethiopia is said to have tremendous potential for biofuels (ethanol and biodiesel) production both from agricultural residues and industrial byproducts as well as cultivation of biofuel trees and cereal crops. An interesting issue in here is to examine how this holds for Ethiopia? Furthermore, to what extent the country can concentrate on biofuels production from agricultural residues and industrial byproducts and to what extent can it substitute agricultural lands for cultivation of biofuel crops without compromising food production? To what extent biofuel trees production can be seen as a land reclamation option? All these are unresolved issues that call for rigorous empirical and applied research. The research in 2011 will investigate the economy-wide implications of biofuels production for the external sector, growth and poverty reduction in Ethiopia using a computable general equilibrium model.
