March 29, 2024
Editorial

FOOD AND FUEL

A recent report from the World Bank concluding that biofuels are a major contributor to rapidly rising food prices adds urgency to the need for a thorough analysis of alternative energy sources to ensure they don’t have unintended negative consequences.

The report, by the bank’s top agricultural economist, estimated that the use of fuel crops for fuel was responsible for up to 75 percent of the 130 percent rise in food prices since January 2002; 56 percent of that increase came since January 2007. The weak U.S. dollar, rising energy prices (which increase production and distribution costs), market speculation and export restrictions also contributed to increased food prices, Don Mitchell said in his report, which was released last month.

Rising food prices are especially problematic in developing countries, where people spend half or more of their household income on food. According to the World Bank, rising food prices have pushed 100 million people worldwide below the poverty line and sparked riots in Bangladesh and Egypt.

Mr. Mitchell’s numbers were quickly rebutted by the biofuel industry. The Bush administration has said ethanol could drive up food prices by 3 percent. The United Nations Food and Agriculture Organization put the impact at 30 percent.

Mr. Mitchell examined many other possible causes for the price increase. Two years of drought in Australia, for example, did reduce grain production there, but these declines were more than offset by large crops in Argentina, Kazakhstan, Russia and the U.S.

Likewise, income growth was not a large factor in demand, Mr. Mitchell wrote. Global consumption of wheat and rice grew less than 1 percent per year from 2000 to 2007. Corn consumption grew by 2 percent (excluding the demand for biofuels in the U.S.).

At the same time, the use of ethanol made from corn grew rapidly between 2004 and 2007, gobbling up 70 percent of the increase in global production. The United States used 20 percent of its corn crop for ethanol.

After accounting for other factors, Mr. Mitchell concluded that between 70 percent and 75 percent of the increase in food commodities prices is tied to increased demand for biofuels and the associated land-use changes and speculation, which he attributes in large part to high prices.

This does not mean that biofuels, which can be made from domestic sources and are cleaner burning that fossil fuels, should be abandoned. The caution presented by this work is that biofuel, especially that made from corn, has consequences far beyond the U.S. border. Those consequences must be weighed against any benefits before deciding that such alternatives are worth pursuing – or prematurely mandating – at the cost of multibillion-dollar subsidies.


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