Biofuels drive up food prices: Bodman and Scafer

There’s been a  definitive piece of work on biofuels and food prices presented to the Senate Committee on Energy and Natural Resources on 11 June chaired by Jeff Bingaman.

Two secretaries of state Samuel W. Bodman (energy) and Edward T. Schafer (agriculture) respond to a series of questions from the committee:


We would again caution, therefore, against hasty judgements driven by highly questionable, agenda-driven calculations, some of which have been featured prominently in the popular press. Many analysts both within and outside of government are currently working to model these questions, and the one certainty is that our data will improve substantially in the months ahead.

It is hard to disagree with that analysis of the situation. More heat than light in the debate in my opinion. For my money, these are some of the key points in the answers:




Appendix 1 Answers this question from Senator Bingaman: How has increased US. ethanol and biodiesel consumption affected domestic agriculture, and domestic food prices?


During the first 4 months of 2008, the all food CPI increased by 4.8 percent, with increased ethanol and biodiesel consumption accounting for about 4-5 percent of the increase in retail food prices.



Appendix 2 Answers this question from Seantor Bingaman: Has increased ethanol and biodiesel consumption in the United Statescontributed to increased global prices for agricultural goods? Andif so, to what extent?


The price of corn increased by 61.7 percent from April 2007 to April 2008. Combining the change in corn prices with the corn weight of 8.1 percent, the change in corn prices contributed

5.0 percentage points to the estimated 45 percent increase in the global food commodity price index. Soybeans, soybean oil, and soybean meal exhibited larger price increases and play a much larger role in the global food commodity price index, a combined weight of over 15 percent. The combined effects of the increase in soybean, soybean meal, and soybean oil prices contributed 11.7 percentage points to the estimated 45 percent increase in the IMF global food commodity price index from April 2007 to April 2008.



And


The estimated impacts on global food prices are consistent with the estimates in response to Question 1. We estimate that the percentage increase in price ofcom from April 2007 to April 2008 would have been 23 percent lower in the absence of any growth in biofuel production in the United States. Based on this analysis, we estimate that the price of com would have increased by 47.5 percent assuming no growth in biofuel production in the United States, down from the actual increase of 61.7 percent, from April 2007 to April 2008.

The growth in biofuel production in the United States also has pushed up soybean, soybean meal, and soybean oil prices. We estimate the percentage increase in the prices of soybeans, soybean meal, and soybean oil from April 2007 to April 2008 would have been about 25 to 30 percent lower in the absence of any growth in biofuel production in the United States. Assuming no growth in biofuel production, the price of soybeans, soybean meal, and soybean oil in the global food commodity price index would have increased by 54.2, 51.2, and 61.5 percent, respectively, down from actual increases of78.6, 69.3, and 80.9 percent, respectively, from April 2007 to April 2008.

The effects ofbiofuel production in the United States on global price for agricultural goods is estimated by combining the individual commodity price impacts with their relative weights in the IMF global food commodity price index. Assuming no growth in biofuel production in the United States, the IMF global food commodity price index would have increased by 40.6 percent compared to the actual increase of 45 percent, from April 2007 to April 2008. Lower com prices contributed 1.2 percentage points, lower soybean, soybean meal, and soybean oil prices contributed 3.2 percentage points to the total reduction in the global food commodity price index.

However, combining soybeans, soybean meal, and soybean oil in the same index overstates the impact ofbiofuels on global prices. Soybeans are processed into soybean meal and oil and by including the effects ofbiofuels on the prices of all three commodities we magnify the impacts of biofuels on the global price index. If we exclude the impact of biofuels on soybean meal and oil prices, the IMF global food commodity price index would have increased by 42 percent assuming no growth in biofuels production compared to the actual increase of 45 percent, from April 2007 to April 2008.

Do you think that this is a fair assessment? I guess that as both of the secretaries of state are from the Bush Administration, they’ve got a political interest in playing the numbers down. The IMF numbers should give an element of impartiality though. Once again the prices of crops matters much less in countries where people eat a high proportion of processed food, but much more in countries where people eat unprocessed food.

I’m struck that

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