World Bank firmly blames biofuel boom for food price rises

www.bioenergy-business.com/
30 July, 2008

A World Bank study this week blamed large increases in biofuels production in the US and Europe as the biggest cause of large rises in food prices around the globe since January 2002. The study, a draft of which has been cited in recent weeks by opponents of the boom in biofuels, concluded that biofuels demand, plus the related consequences of lower stocks of grain, speculation, large changes in land usage and food export bans, accounted for 70-75% of food price rises. The rest of the increase has been the result of a weaker US dollar and higher energy costs and resulting increases in fertiliser and transportation costs, it said.

The study, by World Bank economist Donald Mitchell, said that the large increases in production of biofuels in the US and Europe were part because of subsidies, mandates and tariffs on imports. "Without these policies, biofuels production would have been lower and food commodity price increases would have been smaller," Mitchell concluded.

The increased production of biofuels depleted stocks of grains and oilseeds, he said: "Without these increases, global wheat and maize stocks would not have declined appreciably and price increases due to other factors would have been moderate." However, the conclusions have been criticised as unrealistic. For example, Graham Hilton, director of Energy Crops of the UK and chairman of a renewable transport fuels group at the Environmental Industries Commission trade association, said that the report is "largely positive" about biofuels. The conclusions do not reflect the main contents, he said. The negative conclusions will make it very hard to attract investment into the sector, added Hilton.

Mitchell said that biofuel produced in Brazil, from sugar cane, is cheaper than biofuel made in the US or the European Union (EU), and has not raised sugar prices significantly because sugar cane production has grown fast enough to supply both the sugar and ethanol markets. He therefore made a case for a rethink on trade restrictions on biofuels: "Removing tariffs on ethanol imports in the US and the EU would allow more efficient producers such as Brazil and other developing countries, including many African countries, to produce ethanol profitably for export to meet the mandates in the US and EU. "biofuels policies which subsidise production need to be reconsidered in light of their impact on food prices."