Countries have been searching for alternative energy sources for decades. To explain main driven forces, Rajagopal and Zilberman (2007) suggest that it derives from high petrol prices due to increasing consumption and diminishing oil reserves, increasing concern about individual countries' energy security and commitment to reduce greenhouse emissions under global climate change. The Energy Information Administration (2007) estimates that the world's energy demand will soar by 57 percent by 2030 based on current energy consumption, population growth as well as economic growth, and half of the expected consumption will be from non-OECD countries. So, it seems urgent to develop new sustainable energy. Biofuels then stand out as a partial solution to reduce heavy reliance on fossil fuels.

The Philippine's government signed the Biofuel Law of 2006 on 17 January 2007 to declare the government's objectives and procedures in facing this global challenge. Although objectives of the Biofuel Law could be accomplished, there are still some obstacles which may constraint their fulfilment.

Among these constraints, a key problem is that the potential demand conflict between the biofuel industry (highly increasing demand) and human as well as livestock (non-decreasing demand), provided that the food supply is not elastic. On the one hand, human well-being will worsen as food price rises. The IMF (2006) notes that this conflict could push up prices of corn, sugar and soybean oil, raise the price of partial substitutes such as wheat and rice, and other edible oils, and exert upward pressure on prices of meat and diary. On the other hand, Pearce and Barbier (2000) declare that the increasing cost for the biofuel industry will undermine its comparative advantage. In other words, the biofuel industry will be harmed by the rising cost. Therefore, it is important to find a solution to resolve the potential conflict.