         
The debate is still raging as to whether biofuels are driving food prices up (1). The NYTimes reported that poor in the slums of Mumbai were forced to reduce their protein and staple intake due to skyrocketing palm oil prices (2). In fact, most commodity prices (particularly vegetable oils) are up significantly from last year. Biofuel production is considered to be competitive with petroleum production as long as oil prices hover between the US$60-100 /barrel. When this occurs, though, increased demand for biofuel feedstocks (mainly crop-based) drives up those prices, creating a positive feedback loop stifling the industry. Empty biodiesel processing plants are becoming quite a common feature in Malaysia as palm oil prices have jumped by 40% from last year. How much of this rise is solely attributable to the use of crops for biofuels?
Certainly the diversion of the majority of EU's rapeseed production to biofuel, increased competition between farmland cultivating corn vs soybean in the US, poor oilseed harvests in China and Brazil and now the severe floods in Malaysia reducing yields of palm oil are taking their toll on commodity prices. Yet the added pressure from food and fuel demand are only part of this story, with farmers being further squeezed by rising input costs including labour, transport and packaging. Now these findings were presented by a joint study in the US on corn prices by the biofuel and corn industry; so their results should not be too easily generalized to many other commodities. However, some analysis has shown a relationship between rising crude prices and vegetable oils (www.oilworld.biz). Also, increasing demands for higher quality foods like dairy and meats in burgeoning populations like China and India are further driving up feed prices, produced from oilseed meal.
Currently, petroleum prices have been hovering around the $100/barrel market with no relief in sight. BP may be one of the few oil companies actually posting a loss in sales (3) while Shell is making record profits and no doubt Exxon continues to do so. OPEC refuses to increase its production due to their prediction that demand in the US will be stymied by a poor economy and that having pegged the price of oil to the dollar it is artificially low anyway (4). One may feel that the oil producers may not have the public's interest in mind. In fact, a recent McKinsey report states how investments of oil capital has now surpassed investments made by Asia, creating a potentially worrying dynamic in the world economy (5). Clearly the debate about food vs fuel is not solely between biofuel and agricultural commodities.
I definitely recommend a peruse of this Mckinsey report as maybe we can start really considering the implications of our oil dependence. Not only is it impacting the price of our food, transport and power but now those who are "controlling" all of these are making some key investment decisions as well as influencing governments. Finally, this worrying trend should clear up the question of whether we should be looking at really expanding agrofuel/biofuel use that is dependent on fossil fuel inputs. After all the point of creating incentives for alternative fuels is not just about the climate benefits, for many economies it is an opportunity to encourage greater rural development and reduce dependence on fuel imports.
1 http://www.csmonitor.com/2008/0128/p03s03-usec.html?page=1 2 http://www.nytimes.com/2007/01/31/business/worldbusiness/31biofuel.html 3 http://www.guardian.co.uk/business/2008/feb/05/bp.oil2 4 http://edition.cnn.com/2008/BUSINESS/02/01/oil.supplies.ap/index.html 5 http://www.mckinseyquarterly.com/article_abstract_visitor.aspx?ar=2093&l2=5&l3=2&srid=27
Blog post by amorel on Feb. 14, 2008 at 10:18 a.m.
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