August 20, 2008

'Food vs. fuel'? A handy sound bite

The executive director of Rabobank’s Food and Agribusiness research and advisory department said today that the “food versus fuel is a handy sound bite.”

Karol Aure-Flynn then went on to say, “But, the fallacy of the headline is that there is a direct competition between the two; that it's either or. The reality is that strong global economic growth has changed the demand equation for U.S. commodities.”

Aure-Flynn made those comments in a podcast, which you can download here.

The search for alternative fuels is often blamed for the high cost of food but, according the podcast, it is just one of many factors. In the podcast, analysts with the banking giant say depreciation of the U.S. dollar, soaring energy costs and changing trade policies also contributing to the cost of commodities, which in turn is raising the cost of food -- it's not just fuel, it's a combination of all of these factors.

Here’s a good line from Aure-Flynn: Farmers' profitability doesn't change retail prices. And farmers' profitability isn't guaranteed by high grain prices. The same factors that are lifting grain prices are lifting production costs. So, yes, the farm price index is at 162 percent of what it was 1990-1992, but at the same time the price index measuring what farmers pay -- for services, farm wages -- is 189 percent of base.

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