INSIGHT: Biofuels alone don't push food prices up

10 September 2007 16:42  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Population growth and the increased wealth of nations will together have a critical impact on the further development and use of biofuels.

Turning good agricultural land over to the production of fuels has been dismissed as crazy but is compelling when one aims for greater energy security and reduced vehicle greenhouse gas emissions.

The global shift in gear to green has forced up agricultural commodity prices with the greatest impact thus far on corn and edible oils.

But are biofuels to blame for higher prices for foodstuffs generally, as some contend, including meat, dairy products, crisps (chips) and beer?

To some extent yes. But the development of biofuels needs to be put into perspective.

A steep rise in acreages will help towards a bumper corn harvest in the US this year, 27% of which will be used for the biofuels industry, according to newspaper reports. More corn is being planted often in place of other food crops to fuel a growing bioethanol industry.

Across the globe, canny investors are looking to capitalise on expanding markets for biofuels feedstocks.

Put powerful political, farming and agro industry interests together and you have the iron triangle sometimes talked about in the US when debating the development of ethanol as a friendly fuel additive.

Yet, before the world can make better biofuels and biodiesels using waste cellulosics and other materials it will have to turn to food staples to help it drive.

More important than this trend is the fact that more people want to drive and to do so cleanly.

Increased wealth in developing countries particularly is rapidly changing lifestyles. More people want to eat different foods including bread and meat.

Global agribusiness is getting to grips with changing spending patterns, tastes and biofuels at one and the same time.

Where the biofuels business sits in growing global concerns about higher food prices also needs some context.

Tortilla riots in Mexico and the sky-rocketing price of chicken legs in Brazil rightly draw focus towards biofuels but food prices are being pushed higher by a number of factors.

Changing patterns of demand are probably the most significant. Producing beef for the plate costs a great deal more than simply putting bread on the table. As this trend has gathered pace, drought and floods have devastated food production in parts of the world. Commodity prices have escalated.

“Everyone is focusing on wheat and bread prices at the moment, but there is a general food inflation that hasn’t been with us since the 1990s,” the chief executive of one of Britain’s leading food companies, said last week.

"As long as governments are going to grow fuel, there will be, in effect, an environment tax on food,” said Robert Schofield, head of Premier Foods.

Rising food prices will hit us all. Indeed, a US based environmental pressure group, The Earth Policy Institute, has warned that rising corn prices threaten the booming Chinese and Indian economies, where food price-driven inflation is causing a major problem.

Meat prices are up too. The institute says the price of pork in China has jumped 20% this year while the price of wheat is up by 11% according to data collected for its latest training course by ICIS Insight Asia.

Agricultural commodity prices are rising fast and the more widespread production of biofuels is a contributory factor. 

But the greater argument for curtailing biofuels' headlong advance is the damage turning land over to making fuel does to the environment through more intensive land and agrochemicals use and the impact on vulnerable species and habitats.

Biofuels are not so much under attack but the battle lines have been drawn. Expect the debate to be heated and complex.

For more on biofuels, please see Simon Robinson's Big Biofuels Blog.

ICIS Copyright © Reed Business Information 2009

Author: Nigel Davis
+44 20 8652 3214

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.