Biofuels Boost World Food Prices 75 Percent?

Ronald Bailey | July 4, 2008

Just how much impact biofuels have had on world food prices is quite controversial. For example, U.S Agriculture Secretary Ed Schafer argues that biofuels contribute only two to three percent of the recent dramatic increase in world food prices.

Today the Guardian is reporting that the World Bank thinks that biofuels actually caused the world food crisis:

Biofuels have forced global food prices up by 75% - far more than previously estimated - according to a confidential World Bank report obtained by the Guardian.

The damning unpublished assessment is based on the most detailed analysis of the crisis so far, carried out by an internationally-respected economist at global financial body.

The figure emphatically contradicts the US government's claims that plant-derived fuels contribute less than 3% to food-price rises. It will add to pressure on governments in Washington and across Europe, which have turned to plant-derived fuels to reduce emissions of greenhouse gases and reduce their dependence on imported oil.

Senior development sources believe the report, completed in April, has not been published to avoid embarrassing President George Bush.

"It would put the World Bank in a political hot-spot with the White House," said one yesterday.

The news comes at a critical point in the world's negotiations on biofuels policy. Leaders of the G8 industrialised countries meet next week in Hokkaido, Japan, where they will discuss the food crisis and come under intense lobbying from campaigners calling for a moratorium on the use of plant-derived fuels.

It will also put pressure on the British government, which is due to release its own report on the impact of biofuels, the Gallagher Report. The Guardian has previously reported that the British study will state that plant fuels have played a "significant" part in pushing up food prices to record levels. Although it was expected last week, the report has still not been released.

"Political leaders seem intent on suppressing and ignoring the strong evidence that biofuels are a major factor in recent food price rises," said Robert Bailey, policy adviser at Oxfam. "It is imperative that we have the full picture. While politicians concentrate on keeping industry lobbies happy, people in poor countries cannot afford enough to eat."

Whole Guardian article here.  

 

 

Comments

Neu Mejican|7.4.08 @ 11:41AM|#

Serious question,

Ron, do you find The Guardian article credible?

Is that why you posted it here?

Naga Sadow|7.4.08 @ 11:59AM|#

I should have invested in farm fututes when all the biofuels argument was being made a few years ago. I could have retired . . .

|7.4.08 @ 12:36PM|#

Neu: Actually, I posted it as a question. See headline. If the alleged secret World Bank report is correct, that would basically imply that nearly all of the recent increase in food prices can be attributed to biofuel production.

I think that the International Food Policy Research Institute's estimate that biofuels "have accounted for 30 percent of the increase in weighted average grain prices" is more likely correct. Still quite substantial.

|7.4.08 @ 1:35PM|#

Someone needs to shove this article up Chuck Grassly's ass.

Paul|7.4.08 @ 2:21PM|#

Someone needs to shove this article up Chuck Grassly's ass.

I thought that they could use Charles Switch Grassly for biofuels now.

|7.4.08 @ 2:25PM|#

has not been published to avoid embarrassing President George Bush.

See, that right there made me think twice about this whole thing. Since when has anyone in the international community cared about embarrassing Bush?

|7.4.08 @ 2:27PM|#

I'm not sure what to believe. I used to think that biofuel subsidies accounted for most of the food price increases, but while I think it accounts for some of it, and oil prices another part, something else is at work.

I think we're finally getting our payback for thirty years of inflation. We've been told that the Fed has magically solved the inflation problem, that Volker, Greenspan and Bernanke are frickin geniuses, and that that there's nothing wrong with pumping out dollars. But the effects have been masked by technological innovation and the industrialization of China and India. In other words, rising prices have been masked by falling prices. We're seeing this happen now, because inflation has jumped significantly to finance the Iraq war.

|7.4.08 @ 2:43PM|#

Since when has anyone in the international community cared about embarrassing Bush?

As a corollary to that, why would it embarrass Bush, when the leading candidates to replace him are more gung-ho about this ethanol crap than he is?

|7.4.08 @ 3:14PM|#

Sens. Chuck Grassley and Tom Harkin, I'm so proud to be from Iowa. Is there a worse pair out there?

SIV|7.4.08 @ 3:22PM|#

anon,

Kerry/Kennedy,Clinton/ Schumer, Feinstein/Boxer are just as bad. I'm sure there are more.

|7.4.08 @ 6:21PM|#

Did we really have a food surplus big enough to absorb the biofuel-derived demand without an effect on prices?
I'm skeptical.

economist|7.4.08 @ 7:29PM|#

Whether the figure is 30% or 75%, the farm lobbyists and pols behind this deserve to be tarred, feathered, and run out of town on a rail.

|7.4.08 @ 7:48PM|#

When the food crisis first started getting press it was all references to corn. I had a poke around and found some agriculture journals that referred to corn overproduction in prior years which was expected to return to normal levels.
So that would have contributed to the quick onset we saw with this.

Like everyone else here including the author, I can't figure out whether biofuels account for a lot or very little, nor who's credible on these claims.

But I can tell you that grains used for feedstock has always been a/the major factor in what food doesn't make it to human consumption.

I question whether there has been an increase in biofuel use of corn in the past 5 years that comes anywhere close to the increase in usage by developing nations like China and India, where houshold incomes have increase and therefor so has meat consumption and demand for more livestock and their feed.

|7.5.08 @ 1:12AM|#

Figures Ed Schafer would say something like that; he's from a state that has bet the farm (literally?) on the Ethanol boondoggle.

Guy Montag|7.5.08 @ 10:02AM|#

Didn't rice skyrocket too? Have not heard any link between rice and biofuels, yet. But that nonsense that ACC caused bad weather in Vietnam can't be far around the corner.

|7.5.08 @ 1:09PM|#

I have a very hard time buying the 75% number. I'm no expert on the topic, but I do know numbers, and that number sets off my BS alarm in a major way.

If you want cheap food in developing countries, the trick isn't to get rid of biofuels. The trick is to get the developing countries to fix their economies so that farming becomes worthwhile and profitable. Pretty much every country (aside from oddballs with no land, e.g. Monaco) should be able to grow enough food to feed its own populace.

I'd be more than happy to see us get rid of biofuels subsidies, but I'd rather see people converted to that conclusion via truthful arguments. Fake arguments may be convenient, but they have the problem that they're subject to being discredited. Not to mention that knowingly making fake arguments isn't exactly ethical.

|7.5.08 @ 4:00PM|#

If a Bush appointee makes a statement, chances are it's a lie.

"Since when has anyone in the international community cared about embarrassing Bush?"

If it's coming from the World Bank, Robert Zoellick runs the show and would probably sit on the report. The international community's animus doesn't matter much in that case.

|7.5.08 @ 4:06PM|#

" Pretty much every country (aside from oddballs with no land, e.g. Monaco) should be able to grow enough food to feed its own populace."

That wouldn't help if the farmers get a higher price on the international markets than they would from domestic sales.

In that case, the economically rational thing to do is to sell on global markets and let the local population fend for itself.

|7.5.08 @ 4:42PM|#

I recall reading (years ago) that in countries with starvation problems, farming has such low rewards that nobody bothers farming. If it ain't warlords or the government stealing your crops, it's anti-gouging laws keeping the prices ridiculously low, or foreign aid agencies handing out free food and driving the price to zero.

Again, I'm no expert on this topic. The 75% figure just smells awfully fishy to me, that's all.

First Little Pig|7.6.08 @ 1:59PM|#

Most of the world food problem is with rice, not corn.

The rice problem does seem to have some weather-related issues, but the spike appears to have come from some countries (Egypt is one, I think India is another) disallowing a certain amount of export to keep supply high and prices low domestically. Significant price changes often happen at marginal changes in supply -- especially where stores have not been kept up.

Much of global bio-fuel comes from Sugarcane and the only impact that has on food prices is when productive land is used for sugar rather than a food crop. I do not think very much of this has happened.

The growth in demand for meat has also contributed since much more of the grain crop is being fed to animals which in turn end up on the plate -- an inefficient, if delicious, trade-off.

All of these trends, along with the rise in fuel and pesticide prices, and a general increase in calorie intake in the developing world, and the small impact of our own bio fuel mania have contributed in small, but meaningful, ways to the global food price crisis.

But to blame our use of corn as fuel is ridiculous.

|7.6.08 @ 3:22PM|#

I told you it's a bad idea to keep leeting Iowa go first in the primary calender.

Paul|7.6.08 @ 6:23PM|#

I told you it's a bad idea to keep leeting Iowa go first in the primary calender.

Didn't Florida and Michigan try to fix that?

|7.6.08 @ 8:02PM|#

No, they both scheduled their contests well after Iowa's.

|7.6.08 @ 8:05PM|#

OK, here's why this story doesn't make sense to me:

The world food economy is much larger, even, than the world energy economy.

Worldwide, energy prices have skyrocketed since biofuel production increased. In other words, biofuels are not a large enough segment of the energy market to even be a rounding error in world energy prices.

And yet, we're supposed to believe that they represent a large enough part of the food economy to cause a significant increase in food prices? I just don't see how the math can work out.

|7.7.08 @ 8:41AM|#

You have a bunch of factors going into this problem, most of which have already been mentioned, but I'll recap and add the extras.

These include: biofuels, increased prouction of livestock for meat, higher overall consumption and demand as a result of increasing affluence, higher energy prices, increasing costs for and diminshed amounts of clean water, and finally increasing populations worldwide. The fumbling of NGOs and government price controls don't help either.

Really it is a classic supply versus demand problem. Demand is up and supply is racing to catch up. The poor, as usual, get caught in between. Add to this the cost of production increasing due to increases in costs involving energy and water and you have your answer.

Steve Verdon|7.7.08 @ 5:30PM|#

Actually the 75% number is wrong in referencing the impact of biofuels on the price of food items. The report claims that the price of food rose 140% from 2002 to this February and that biofuels accounted for 75% of that increase. Thus, the actual impact of biofuels on the price of food is to increase food prices by 105%.

Worldwide, energy prices have skyrocketed since biofuel production increased. In other words, biofuels are not a large enough segment of the energy market to even be a rounding error in world energy prices.

And yet, we're supposed to believe that they represent a large enough part of the food economy to cause a significant increase in food prices? I just don't see how the math can work out.

I don't see the problem. It requires much more corn, for example, to produce a gallon of ethanol than it take in converting oil to gasoline. As such, even though corn production might be say several orders of magnitude larger than oil production you would end up with a smaller amount of ethanol.

If you are going to take 1 out of every 3 bushels of corn and turn them into ethanol (in the U.S.--and I want to say Prof. James Hamilton put it at 1 in 4 bushels) you are going to see prices go up. Maybe the magnitude is wrong, but prices will go up, and more than the meager 3% the Bush Administration is claiming.