UPDATE 2-IADB backs sugar-based ethanol plants in Brazil

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By Adriana Garcia

WASHINGTON, July 23 (Reuters) - The Inter-American Development Bank on Wednesday approved a record $269 million loan to develop three sugar-based ethanol plants in Brazil, as the debate continues over the impact of biofuels on food prices.

The multilateral institution will also help raise an additional $379 million from commercial banks for what it called the largest biofuel investment ever made by a development bank.

IADB President Luis Alberto Moreno defended Brazil's sugar-based ethanol projects against critics, saying international prices for sugar have fallen, the opposite of what has happened with other crops.

"At a time of soaring food and energy prices, it is crucial to develop renewable fuels that don't compete with food crops," IADB's Moreno said.

He said the bank examined the social, environmental and economic aspects of the projects for more than a year and concluded they "will produce clean and sustainable energy and provide quality jobs without impacting food prices in any way."

Biofuels such as ethanol and biodiesel have created international interest as oil prices have surged, but they became controversial as the prices of grains and seeds have also spiked in recent months.

Multilateral institutions such as the United Nations, the World Bank and the International Monetary Fund have also expressed concern about the effect of growing crops for biofuels on food prices.