October 8, 2008

Report: Biofuels not behind food crisis

Here’s a second blog post in response to the U.N. Food and Agriculture Organization’s The State of Food and Agriculure 2008 report. (Here’s the first post.)

Despite all the headlines - some created by the U.N. itself (remember the bogus “crimes against humanity line”?) - biofuels have contributed considerably less to rising global food prices than some have previously estimated. As noted in this report from Wired magazine, the U.N. report estimated that biofuels production added only 15 percent to world food prices.

And that is likely an overestimation because ethanol production has expanded in the U.S. over the last 10 months, yet overall global food prices have headed lower. (USDA's 3 percent figure is looking better all the time.)

"Food prices have dropped significantly and will continue to drop," Per Pinstrup-Andersen, a food economist at Cornell University, told Wired. "The reason for that is that farmers respond to these higher prices and you'll get more food produced than ever before."

Pinstrup-Anderson was not an author of the U.N. report, and he may not be a big supporter of corn ethanol. But he does understand that higher grain prices will lead the world to grow more, especially by farmers in developing countries, and that is important to remember when discussing biofuels and higher grain and oilseed prices.

The report includes a chart that shows FAO's food price index moved up sharply in the 2006-07 and early 2008 period. The last time a similar run-up was occurred? When oil prices spiked in the 1970s, just like they did this year. (FAO's "real food price index" is still below the 1970s figure.)

FAO noted that there are several factors involved in food prices. Here is its laundry list: weather-related production shortfalls in major exporting countries, low global cereal stocks, increasing fuel costs, the changing structure of demand associated with income growth, population growth and urbanization, operations on financial markets, short-term policy actions, exchange rate fluctuations and other factors.

Another important contributor to food insecurity? Decades of depressed prices that led developing countries to neglect investments in agriculture productivity, FAO said. Have higher global grain and oilseed prices over the last year begun to change that?

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