July 4, 2008

Biofuels Raise Food Prices 75%?

Wow.  I confess I'm surprised by this.  
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The damning unpublished assessment is based on the most detailed analysis of the crisis so far, carried out by an internationally-respected economist at global financial body.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.
. . . . . 
It argues that production of biofuels has distorted food markets in three main ways. First, it has diverted grain away from food for fuel, with over a third of US corn now used to produce ethanol and about half of vegetable oils in the EU going towards the production of biodiesel. Second, farmers have been encouraged to set land aside for biofuel production. Third, it has sparked financial speculation in grains, driving prices up higher.

Other reviews of the food crisis looked at it over a much longer period, or have not linked these three factors, and so arrived at smaller estimates of the impact from biofuels. But the report author, Don Mitchell, is a senior economist at the Bank and has done a detailed, month-by-month analysis of the surge in food prices, which allows much closer examination of the link between biofuels and food supply.

The report points out biofuels derived from sugarcane, which Brazil specializes in, have not had such a dramatic impact.

Supporters of biofuels argue that they are a greener alternative to relying on oil and other fossil fuels, but even that claim has been disputed by some experts, who argue that it does not apply to US production of ethanol from plants.

"It is clear that some biofuels have huge impacts on food prices," said Dr David King, the government's former chief scientific adviser, last night. "All we are doing by supporting these is subsidising higher food prices, while doing nothing to tackle climate change."
I don't think anybody bought the 3% line that the Bush administration was pushing, it seemed clear that that was more political than factual, but 75% is pretty damning for biofuel supporters in the face of the global food crisis.  I would have wagered it was closer to 20-30%, but no where near that high.  This is definitely going to complicate the ongoing debates surrounding oil, energy and food.  Look for Bush to hunker down and weather the storm until January and for McCain and Obama to try and get very clever and nuanced.  

1 comment:

Pomeroy Kinsey said...

Man, that seems unbelievably high. I'll be interested to follow what the econoblogs start to say about it. Probably should put an asterik beside this estimate at least until an actual report materializes.

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