Bridges Trade BioRes • Volume 7 • Number 17 • 5th October 2007

Biofuels to Blame for Rising Food Prices?

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The biofuels industry is finding itself in trouble due to rising food costs. The EU recently suspended its agricultural “set-aside” programme - a policy that requires European farmers to set aside ten percent of their land due to massive overproduction 15 years ago - for at least a year, sparking concerns among environmentalists over negative impacts on biodiversity.

Rising costs of food, especially corn and wheat products, have fuelled the public’s growing criticism of the biofuels industry. Food prices in the US were 3.6 percent higher in August than a year before, a significant increase from the expected 2.7 percent inflation adjustment. The price of cereal in the EU has also risen due to the shortages caused by poor harvests in 2006 and 2007. Italians have complained at the cost of pasta, while the French are worried about the increased price of a baguette.

Developing nations will likely be much more hard-hit. In a warning issued in early September, Jacques Diouf, Director-General of the UN’s Food and Agriculture Organisation, said dramatic increases in prices for basic food imports such as wheat, corn and milk had the “potential for social tension, leading to social reactions and eventually even political problems.” Diouf went on to note that food represents up to 65 percent of consumer spending in developing countries, while it only accounts for about 10-20 percent of spending in industrialised countries.

US government officials and the European Commission alike have argued that the increase in prices has been overstated. Some analysts have suggested that producers instead have used the situation as a means to hike prices. The European Commission has argued that only four percent of a loaf was composed of wheat.

“When we break down what is happening with food prices, we do see a complex set of factors at work. It’s not quite a simple equation of rising ethanol demand equals higher food prices,” acting US Agriculture Secretary Chuck Conner noted at a food policy conference. “It’s important to look at the big picture,” Brent Searle of Oregon Department of Agriculture Searle said. “A lot of these fuel-versus-feed arguments do not stack up…Ethanol from corn is transitory [as second generation biofuel technology will rely on agricultural waste and by-products]. My concern is we don’t kill the good to try to achieve the perfect.”

“Don’t Blame Ethanol for Food Prices - USDA’s Conner,” REUTERS, 2 October 2007; “European Union scraps limits on grain production in response to wheat price crisis; Eu biofuel of 10% energy use by 2020 seen as more threat than benefit,” FINFACTS, 14 September 2007; “Growing Biofuels: The Sustainability Opportunity,” by Patrick Mazza, 3 October 2007; “Record rise in wheat price prompts UN official to warn that surge in food prices may trigger social unrest in developing countries,” FINFACTS, 7 September 2007.