Food prices rose 6% overall last month, driven by a devastating drought in the United States and rising petrol costs that make production and distribution more costly. The UN Food and Agriculture Organisation (FAO) reported that maize prices soared 23%, wheat was up 19% and sugar 12% compared to June.
At the urging of France, heads of the Agricultural Market Information System met yesterday (27 August) to discuss whether to call a special session of the Rapid Response Forum, set up by the G20 countries last year to improve coordination among governments as well as the European Commission.
Many factors at play
Factors other than the growing demand for biofuels in Europe and the United States are at play in the higher costs of food, says Rob Vierhout, secretary-general of the European Renewable Ethanol Association, or ePure. He sees commodities speculation, food waste and growing appetites in emerging markets as bigger factors.
“You cannot present a convincing case that biofuels are structurally causing higher food prices,” Vierhout told EurActiv. “We have had problems with [volatility] for decades and even in the time when biofuels were absolutely not around.”
An export ban like the one Russia imposed during its own damaging drought two years ago “immediately inflates the price,” Vierhout said. “And you can give more examples. We have seen hugely volatile prices with rice whereas rice is not used for biofuels.”
Vierhout blamed some campaign groups and journalists for linking biofuels to higher food costs, saying there’s another side to the story: higher prices encourage farmers to be more productive and drive innovation in crop use. The biofuel market also cuts waste in agriculture by turning plant residue into fuel and reduces excess capacity.
“I don’t read anything about that,” Vierhout said. Campaigners, he continued, claim “that we are taking away food out of the market and don’t give anything in return. It’s simply not true.”
FAO, World Bank cautious about biofuels
But the industry’s interpretation is far from universal. The United Nation's Food and Agriculture Organisation (FAO) last month urged the United States to suspend its mandate for producing biofuel to relieve pressure on maize crops amid the nation’s worst drought in 50 years. US livestock producers also called for a suspension of the biofuel policy over feed supply concerns.
In recent years, the World Bank has grown more cautious in its support for biofuel development amid concerns about food and feed supply volatility, with one World Bank agro-economist arguing that EU and US biofuel policies “were the most important factor” in a 2008 food price spike.
“Without these increases, global wheat and maize stocks would not have declined appreciably, oilseed prices would not have tripled, and price increases due to other factors, such as droughts, would have been more moderate,” Donald Mitchell, at the time a World Bank economist, wrote in a report on food prices.
Oils produced from wheat, corn, sugar beet, soy and other farm crops are known as first-generation biofuels are their use has become more controversial. But alternatives like palm and jatropha are also under fire from conservationist on the grounds that land-clearing, production and water use that goes into producing the crops – often in developing countries – yields little or no environmental benefit.
Disputes within the European Commission have failed so far to produce agreement on guidelines for addressing the land-use impact of biofuel.
Pressure on EU to drop 2020 biofuels target
Citing the potential of both environmental and food impacts, Oxfam and other poverty-fighting groups have called for European policymakers to reconsider their support for biofuel. Campaign groups fear the impact could grow if the aviation industry sticks to its plans for biofuel to comprise 30% of its fuel supply by 2030.
Bettina Kretschmer of the Institute for European Environmental Policy is an author of a recent report that calls for the EU to rethink its target of 10% renewable energy use in ground transport by 2020 in part because of the long-term impact of food costs.
Kretschmer acknowledged that biofuels alone will not lead to higher prices, but “it is clear that there is an impact,” she told EurActiv. “We would encourage reconsideration of the design of the target,” she said of the EU’s 2020 goals, with a stronger focus on improving automotive efficiency, electric vehicles and biofuel derived from waste residue.
The IEEP study, prepared for the ActionAid anti-proverty group, shows the largest price impact on oilseeds and vegetable oils that are refined for biodiesel, with less impact on wheat and maize used to produce ethanol. The report forecasts:
- Prices for oilseeds rising between 8% and 20% and vegetable oils between 5% and 36% by 2020. These oils are derived from rapeseed and soy plants, as well as non-food plants such as jatropha.
- Wheat prices rising between 1% and 13% and maize 1% to 22. Grains are mainly used to produce ethanol petrol.
- Sugar cane and beat rising between 1% and 21% over the next eight years. These are also used for ethanol.
Biodiesel accounted for 72% of biofuel consumption in the EU last year and 74.4% of Europe’s production, the report says. Though ethanol demand is expected to rise in the EU, it is the dominant biofuel in the US market.
Vierhout, the ePure chief, doesn’t deny the price impact of higher demand for commodities – those that go into stomachs as well as fuel tanks. He sees many factors driving up demand – and prices – including changing social patterns and income growth in emerging economies.
“Everyone knows that demand for commodities is growing. Sure, I agree, biofuel is one reason why demand is growing. But the real drive for higher demand is that lots of people in Asia are changing their dietary habits and they all want to eat all of a sudden,” Vierhout said.