Option A: Government intervention. As the government endeavours to develop the biofuel industry, they should also provide the agricultural industry with various incentives to promote its development. For example, the government could invest more to develop agricultural technology; encourage farmers to reclaim idle lands and utilize more machines; provide subsidies to farmers.

Benefits can then be obtained by doing so. First, substantial capital could be invested in agriculture to ensure sustainable economic growth. Balisacan (1993) notes that high investment in agriculture could contribute more rapid growth for less developed countries (LDCs) compared with other development strategies such as industry-led import substitution and the export-led growth model. Second, a win-win outcome could be achieved. Braun (2008) suggests that when government ensures the development of agriculture, consumers' interests could be safeguarded, as food prices for them remain low. Furthermore sources for the biofuel industry will be guaranteed under the low price, which will help strengthen its comparative advantage to compete globally. As Ricardo (1817) notes the global trade should be based on individual countries' comparative advantage. 

However, the cost of government intervention is high. Most measures in this option share the same assumption: the government will take the responsibility to expand expenditure for higher efficiency in both industries. Timmer (1989) suggests that government intervention is subject to expenditure of public resources, and this intervention will usually destabilize other parts of the economy. To demonstrate its adverse influence, Krugman (1979) suggests that inflation tend to arise due to the government's excessive expenditure. So, the government will bear a larger public expenditure burden when it intervenes the market.

Option B: Let market determine itself. Smith (1776) declares that the invisible hand will adjust supply and demand through price which reflects resource scarcity. The same principle holds here. Timmer (1989) argues that as the price of food becomes high, the market will adjust accordingly to make demand equal supply. Therefore, the free market is sufficient to achieve efficiency.

With regard to the benefit of this option, there is no government intervention, which causes a number of inefficiencies. Kompas (2004) illustrates that input controls on Australia's Banana Prawn Fishery cause a significant technical inefficiency. While less government intervention, as Lee (1996) declares, is linked to higher productivity growth. Kompas (2001) also demonstrates that high productivity and efficiency are achieved in Vietnamese rice production after market reform, especially trade liberalization. So, less government intervention could enhance efficiency.

On the other hand, a massive expansion in the biofuel industry would exert high pressure on the global food supply. When food demand for human cannot be satisfied, social instability tends to rise. Brown (2007) predicts that shortages and high food prices will lead to starvation and urban riots. Second, it is unrealistic to rely exclusively on markets and ignore governments' positive influence. Pearce and Barbier (2000) explain that many environmental resources have no market. They are not bought and sold. There are no price signals to alert us to their scarcity or to induce discovery, substitution and technological change. Furthermore, Olson (1996) declares that a government's proactive role to regulate markets is decisive for its economic performance. Therefore, the free market will worsen human well-being without the government's regulation.

Proposal

After evaluating each solution, Option A is preferred. The main difference between Option A and B is how effective the price mechanism and government intervention are in order to achieve sustainable growth and high efficiency. Although the free market is a ideal model, in reality, there are many market failures due to externalities and lack of information. Thus, the government should play a more proactive role here to ensure overall well-being.

Indonesian President Susilo Bambang Yudhoyono (2007) said biofuels were a key engine of growth. Therefore, it is crucial to develop agriculture well to ensure the long term sustainability in the biofuel industriy.