Biofuels Responsible For Most of Rise in Food Crop Prices
The expansion of biofuels production is responsible for the lion’s share of the runup in food and feed commodity prices, according to a Working Paper published by the World Bank.
The paper, A Note on Rising Food Prices, which does not represent the official view of the World Bank, estimates that “the combination of higher energy prices and related increases in fertilizer prices and transport costs, and dollar weakness caused food prices to rise by about 35-40 percentage points from January 2002 until June 2008.”
These factors explain 25-30 percent of the total price increase, and most of the remaining 70-75 percent increase in food commodities prices was due to biofuels and the related consequences of low grain stocks, large land use shifts, speculative activity and export bans.
While other estimates agree that biofuels have contributed to higher food commodity prices, the paper’s estimate is much higher.
This reflects author Donald Mitchell’s argument than speculative activity and export bans that may have contributed to higher prices are in essence a “knock-on” effect of increased biofuels production from food and feed crops.
While he acknowledges that export controls have had an impact, notably in the rice market, he is skeptical about the effect of speculative activity: “The impact on prices is hard to quantify and most studies do not find that such activity changes prices from the levels which would have prevailed without such activity…”
The paper’s policy recommendations: “Removing tariffs on ethanol imports in the U.S. and EU would allow more efficient producers such as Brazil and other developing countries, including many African countries, to produce ethanol profitably for export to meet the mandates in the U.S. and EU. Biofuels policies which subsidize production need to be reconsidered in light of their impact on food prices.”
Felix Salmon at Portfolio.com compares the final paper with an earlier leaked version and finds little evidence of the censorship reported by The Guardian.
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