Tuesday, March 29, 2011

Biofuels cited in outlook for food price gains

Biofuels cited in outlook for food price gains

Mar 28, 2011
by Bob Tippee, Editor

"Rising Prices on the Menu," says the title of an article in an International Monetary Fund magazine that predicts an extended increase in the price of food.

Until recently, food prices were historically low. In 1977-79 dollars, an IMF global index of food prices even now is about where it was in the Great Depression. It was much higher in 1920 and since then has followed downward-trending cycles of 30-40 years' duration.

The latest low point on the trend line occurred in 2000-01.

"Since the turn of the century," says the article in IMF's Finance & Development, "food prices have been rising steadily—except for declines during the global financial crisis in late 2008 and early 2009—and this suggests that these increases are a trend and don't just reflect temporary factors."

The main explanation offered by Advisor Thomas Helbling and Economist Shaun Roache of IMF's Research Department is dietary improvement in emerging and developing economies. People with growing incomes eat more protein and relatively less staple grain. The change increases claims on agricultural resources, pushing up prices.

Then there's what Helbling and Roache call "the boom in biofuels." Last year, fuel ethanol claimed 15% of the global corn crop. Cane sugar, palm kernels, and rapeseed increasingly find their ways into biofuels.

Rising oil and gas prices push up food prices, too, the authors note, adding, "Biofuels have likely strengthened this link."

Helbling and Roache expect an easing of a food-price surge that began last year after a series of weather-related shocks to supply. But the trend will continue.

"The upward trend in prices is unlikely to reverse soon because the supply adjustment to the structural increases in demand for major food commodities will take time," the authors say. Inevitably, the burden falls most heavily on poor people. It probably helped destabilize North Africa and the Middle East.

Yet governments continue to encourage the burning of food. This is one of the colossal follies of the age.



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Biofuels are a wide range of fuels which are in some way derived from biomass.

Your idea?