World Bank: Biofuel impact on food prices not so large

by World Grain Staff
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BRUSSELS, BELGIUM — A new report published by the Development Prospect Group of the World Bank on the causes of the 2006-2008 commodity price boom concludes that the spike on food prices was largely due to rising energy prices and commodity speculation, the European Bioethanol Association (eBIO) said on Aug. 2.

The report "Placing the 2006/08 Commodity Price Boom into Perspective (July 2010)" by John Baffes and Tassos Haniotis examines a very controversial issue at the time: What caused the 2006-08 commodity price boom?

Between 2003 and 2008, nominal prices of energy and metals increased by 230%, those of food and precious metals doubled, and those of fertilizers increased fourfold. The boom reached its peak in July 2008, when crude oil prices averaged $133 per barrel, up 94% from a year earlier. Rice prices doubled within just five months of 2008, from $375 per tonne in January to $757 per tonne in June. The price surge of food and food commodities many believed was mainly caused by the mandated use of biofuels. Looking back the conclusion is a different one.

The paper concludes that the effect of biofuels on food prices has been much less than initially thought. However, the use of commodities by financial investors (the so-called "financialization of commodities") and the subsequent commodity speculation "played a key role during the 2008 price spike."

Another major conclusion is that energy prices played a significant role in the price spikes that occurred. These conclusions come at a time when several similar studies have shown that biofuels are not to blame for massive food price increases.

The paper points out that biofuels account for such a small part of the overall production of grains and oilseeds that they are unlikely to have much of an impact on prices.

"Clearly U.S. maize-based ethanol production, and (to a lesser extent) E.U. biodiesel production affected the corresponding market balances and land use in both U.S. maize and E.U. oilseeds. Yet, worldwide, 1.5% of the area under grains/oilseeds is allocated towards biofuels production. This raises serious doubts about claims that biofuels account for a big shift in global demand," the paper said.

Maize prices hardly moved during the first period of increase in U.S. ethanol production, and oilseed prices dropped when the E.U. increased impressively its use of biodiesel. In addition to this, prices spiked while ethanol use was slowing down in the U.S. and biodiesel use was stabilizing in the E.U., according to the researchers.

"The biofuel industry is finally vindicated. We have always said that our industry had been wrongly blamed for the food versus fuel crisis and now we are proven right. This report should finally silence those that have blamed the biofuel producers for food shortages, food price increases and for committing a ‘crime against humanity.’ It is about time these people recognize the facts," said Rob Vierhout, secretary general of eBIO.

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