Bio-Fuels Not To Blame for Rising Food Prices

Multiple studies seem to indicate that bio-fuels aren’t the real culprit for rising food prices, supply and demand are the real issues:

(From the WSJ’s Environmental Blog) “Maybe corn belt politicians have a point, after all. Biofuels play a “far from dominant” role in food price increases around the world, according to a study to be released next week by clean technology analysts New Energy Finance.

The London-based group, which tracks investment in alternative energy including biofuels, broke down how much of the price increases in food staples like grains and oils can be chalked up to greater biofuel production, and how much to other factors—like higher oil prices, a weak dollar, and simple laws of supply and demand. The debate is at the heart of everything from Silicon Valley to the future of Europe’s farm policy.

The conclusion? Supply and demand is the biggest culprit for price gains of up to 244% for some crops in the last four years, as people in countries like China started eating more beef (which requires a lot more grain that making noodles does.) The next biggest factor, in both grains and food oils, is crude oil, since that’s a crucial input for everything from tractor fuel to fertilizer. Finally, the weak dollar plays a big part as well, making global commodities (including crude oil) trade at higher levels.

So what part do biofuels play in the food mix? Not much. New Energy Finance finds that certain crops—like U.S. corn—are indeed pricier thanks to mandates to produce more fuels like ethanol. But overall, sowing land with crops for biofuels doesn’t appear as much to blame as short-sighted subsidies policies which create market distortions. That is similar to analysis by the United Nation’s Food and Agriculture Organization, which also points to higher energy costs as the biggest villain, but says that greater biofuel production could explain 10% of the price rise.”

Supply and demand causing commodities prices to increase? Madness I tell you!

But seriously the worrying aspect of the rise in commodities prices is the fact that people are looking for someone or something to blame, as opposed to confronting the core issue of supply and demand. Simply put: the world has changed significantly and it appears that many people are either unaware or in denial. As emerging market economies develop and the world population grows the demand for food will continue to rise dramatically, we either have to change the way we produce agricultural commodities in order to meet that demand or continue to live with the consequences.

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