High food prices persist, challenging role of biofuels

18 February 2009 22:15  [Source: ICIS news]

NEW YORK (ICIS news)--The impact of biofuels on food prices is being challenged now that energy prices have come down with no reversal in food prices yet seen, industry sources said on Wednesday.

“We haven’t seen a change in food prices even though commodity and energy prices have dropped by half since their summer highs,” said Jin Chon, spokesperson for Growth Energy, a coalition of American ethanol producers.

“There are numerous global factors behind food inflation, including energy prices, increasing demand for food from a growing global population, regional droughts and commodity speculators. These are far bigger factors in increased grain prices than biofuels, which uses only 4% of world grain and has a minimal impact on food prices,” Chon added.

Indeed, Growth Energy maintains that ethanol production has had a very small impact on food prices, and this impact will not grow in the future.

“The inflation pressure from both oil and corn prices abated substantially in the second half of 2008, and that is pretty well expected to continue into 2009,” said Scott Richman, senior vice president and commercial consulting lead for Informa Economics, a commodity market analysis and management consulting firm based in the US.

Richman said several events happening around the same time contributed to the rising prices of food products in the past few years.

In autumn 2006, grain prices started to take off and oil prices had been rising steadily for a few years before that. In 2006-2007, Australia was hit with a drought that destroyed its wheat crop, leading to a shortage in the global market, he noted.

In 2008, floods and wet weather in the US midwest prevented planting until as late as June, Richman said.

Crude oil prices continued to spike, reaching record levels last summer. Concurrently, corn prices reached record levels of over $7/bushel, according to Keith Wiebe, deputy director of the agricultural development economics division of the Food and Agriculture Organization (FAO) of the United Nations.

Afterwards, higher corn plantings in the US and higher wheat plantings around the world in the summer/fall of 2008 led to bumper crops. Then oil prices began to fall due to the economic downturn.

“Now oil is down 60–70% to roughly $40/bbl, and corn is down to under $4/bushel,” Wiebe said.

Meanwhile, food prices have remained high, he noted.

($1 = €0.79)

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By: Feliza Mirasol
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