Biofuels Starving World’s Poor
The drastic rise in prices for corn, rice, and other staples that is wreaking havoc in parts of the developing world is due in large part to Western investment in biofuels, according to a recent report of the World Bank.
The rising trend in international food prices continued, and even accelerated, in 2008. U.S. wheat export prices rose from $375/ton in January to $440/ton in March, and Thai rice export prices increased from $365/ton to $562/ton. This came on top of a 181 percent increase in global wheat prices over the 36 months leading up to February 2008, and a 83 percent increase in overall global food prices over the same period (see Figure 1).
Increased bio-fuel production has contributed to the rise in food prices. Concerns over oil prices, energy security and climate change have prompted governments to take a more
proactive stance towards encouraging production and use of bio-fuels. This has led to increased demand for bio-fuel raw materials, such as wheat, soy, maize and palm oil, and increased competition for cropland. Almost all of the increase in global maize production from 2004 to 2007 (the period
when grain prices rose sharply) went for bio-fuels production in the U.S., while existing stocks were depleted by an increase in global consumption for other uses. Other developments, such as droughts in Australia and poor crops in the E.U. and Ukraine in 2006 and 2007, were largely offset by good crops and increased exports in other countries and would not, on their own, have had a significant impact on prices. Only a relatively small share of the increase in food production prices (around 15%) is due directly to higher energy and fertilizer costs.
The observed increase in food prices is not a temporary phenomenon, but likely to persist in the medium term. Food crop prices are expected to remain high in 2008 and 2009 and then begin to decline as supply and demand respond to high prices; however, they are likely to remain well above the 2004 levels through 2015 for most food crops (Table 1).
Forecasts of other major organizations (FAO, OECD, and USDA) that regularly monitor and project commodity prices are broadly consistent with these projections. Predictions of high food price in the medium run are further strengthened when we factor in the impact of policies aimed at achieving energy security and reduced carbon dioxide emissions, which may present strong trade-offs with food security objectives.
More details are available in the backgrounder, “Rising food prices: policy options and World Bank response” [PDF].
World Bank President Bob Zoellick was on NPR this morning talking about this.
Demand for ethanol and other biofuels is a “significant contributor” to soaring food prices around the world, World Bank President Robert Zoellick says. Droughts, financial market speculators and increased demand for food have also helped create “a perfect storm” that has boosted those prices, he says.
The soaring costs of food and fuel led to riots in Haiti and Egypt and a general strike in Burkina Faso this week. Skyrocketing food prices are topping the agenda this weekend of the World Bank and International Monetary Fund annual spring meetings in Washington.
Zoellick held up a bag of rice during a news conference Thursday to illustrate the severity of the food crisis. “In Bangladesh a two-kilogram bag of rice … now consumes about half of the daily income of a poor family,” he said. “The price of a loaf of bread … has more than doubled. Poor people in Yemen are now spending more than a quarter of their incomes just on bread.”
And Zoellick says prices for basic staples will remain high for an extended period of time. “I think you have a perfect storm of things coming together,” he tells NPR’s Steve Inskeep in an interview. “You have high energy prices. You have the increase in demand from some of the developing countries. … As the Indian commerce minister said to me, going from one meal a day to two meals a day for 300 million people increases demand a lot. “You have some of those countries moving to a different diet. So more meats require more grains. You have the biofuels expansion, which is a big source of demand.”
It has long struck me as wrongheaded, if not immoral, to take cheap, efficient sources of nutrition to turn them into expensive, inefficient fuels. A gallon of ethanol produces roughly two-thirds the energy of a gallon of gasoline and is far more expensive. And, while farmers and, especially, processors make more money by the increased demand for biofuels, it means that food is now out of reach for millions.
Where to draw the line on these things is unclear. It’s inefficient to feed grain to livestock in order to produce meat — another trend highlighted by Zoellick and the report. But at least that’s turning food into a more desirable (if not necessarily more healthy) food.