16 May 2008

Biofuels Not to Blame for Food Prices

Cooler minds have realized that high food prices are caused by a large medley of factors. Global speculation, high energy and fertilizer costs, rocketing demand for livestock feed by China, extraordinarily cold weather globally, and local political factors all play a much larger role in jacking up food prices.
In Canada, FAO officials said in Senate testimony that recent price rises for grains are the result of falling yields and drought, not biofuels, and noted that wheat prices have dropped by 50 percent and corn was showing signs of entering a price decline phase. __Biofuelsdigest
Cooler weather across many important growing regions of the globe have set back planting dates and reduced growing seasons and projected yields.

Biofuels play a very minor role in this medley, yet are being used as a political football by opportunistic politicians, journalists, and bureaucrats. They play a cynical game, when energy supplies are already being artificially restricted by the US Congress and other opportunistic groups of corrupted players. They try to blame biofuels, but
...proving a direct causal relationship of large-scale, worldwide production of biofuels on world food prices, for example, is hard if not impossible because there are many other intervening variables such as the price of oil, yearly weather changes affecting harvest yields, increased demand from emerging economy countries, and general economic inflation, to mention a just a few. Source
When the bulk of biofuels manufacture moves beyond the use of food feedstocks, to the use of biowaste cellulosic feedstocks and cellulosic crops grown on marginal lands, the impact of biofuels on food supplies and prices will be even less than it is today. Unfortunately, politicians, bureaucrats, and journalists want to kill the biofuels baby in its crib before it can develop into the substantial replacement for fossil fuels that it promises to become.


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Blogger Bruce Hall said...

Al Fin,

Food crops used for ethanol may contribute some to the price increases of specific crops. My brother's in-laws have a dairy farm about 100 miles north of Detroit and have experienced both sides of the equation. They have enjoyed significant improvement in their earnings as a result of selling their "field corn" for ethanol stock and raise other crops for feeding their cows. The price of milk has escalated since the cost of feed stock has increased due to production costs associated with diesel fuel.

The result is that farmers are somewhat better off because they can increase their acreage of corn and receive 3-4 times the price they got several years ago while holding their herd sizes relatively constant and supplementing the feed they grow on non-corn acreage. Besides, they know that corn is a relatively poor feed stock for cows.

So, in this instance, the price of corn-related products and milk/meat have been distorted by government mandates for ethanol and restriction of oil production/refinery building.

Saturday, 17 May, 2008  
Blogger al fin said...

Anything that either increases demand or decreases supply of a commodity will push its price upward. But we need to look at all of the influences.

Certainly the US Congress has restricted oil production and refining. The recent defeat in Senate committee of a measure that would allow exploration and development of massive oil shale deposits in Colorado and Utah speaks loudly to the current Congress' war against domestic energy production.

As for maize prices being controlled by government mandates for ethanol, that is easily claimed by politicians and journalists, but much more difficult to prove. So many other, more influential drivers of the price of grain on commodities markets are operating that to single out one of the smallest and put the blame on that is not helpful--although journalists and politicians are apt to do so for their own reasons.

Saturday, 17 May, 2008  
Blogger Bruce Hall said...

Al Fin,

What you say is correct on a global scale, but regionally the government push to produce ethanol as a substitute fuel has far greater impact on corn prices than normal market conditions for farmers who, like the rest of us, sell our products and services to the highest bidder: http://www.neo.ne.gov/statshtml/122.htm

As production facilities ramp up, the impact increasingly will be felt in food stores.

Sunday, 18 May, 2008  
Blogger al fin said...

Bruce, is there truly any scale other than the global scale when it comes to commodities? Global commodities pricing affects prices within almost every national market.

The highest bidder may be bidding that high because of overseas bidders and the international commodities market. International prices are affected by Chinese/Indian demand, the price of fuel and fertilizer, global weather, currency fluctuations, political upheavals, and so on.

Remember, there is a huge amount of unplanted productive land in North America. It is not a zero-sum game. Production of grain can be scaled up significantly. Why isn't it?

Sunday, 18 May, 2008  
Blogger Bruce Hall said...

Al Fin,

You ask some good questions and I can't answer the supply question... why can't production be ramped up. Perhaps it is because, unlike oil or coal or steel, crops involve vastly more producers and very regionalized distribution systems that are not likely to change crop mix to unfamiliar crops. Also, despite large corporate producers such as ADM, large tracts of land are simply not owned by crop raisers.

Demanding more corn may slightly increase the supply, but may create supply shortages in other crops.

Not a zero-sum game, but not infinitely expandable... or adaptable to dislocations caused by government manipulation and interference.

But keep up the good posts. I find them interesting and entertaining.

Sunday, 18 May, 2008  
Blogger al fin said...

I have no doubt that you will get to the bottom of the problem eventually, Bruce.

The truth is that US corn production is up by about 40% over the last 15 years, with much excess yield left over after subtracting the corn ethanol component.

The largest adverse impacts on food prices come from energy and fertiliser costs, increased demand from emerging nations, adverse weather conditions, adverse political conditions including new high export tariffs in food producing countries such as Argentina and India, etc.

Tuesday, 20 May, 2008  

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