NCPA - National Center for Policy Analysis

Biofuel Subsidies Cause Agricultural Price Shocks

June 20, 2011

A new study, requested by G-20 leaders last November, fingers biofuel subsidies as among the leading causes of agricultural price shocks.  According to the report, "between 2000 and 2009, global output of bioethanol quadrupled and production of biodiesel increased tenfold," a spike which "has been largely driven by government support policies."  The report cites forecasts suggesting that the price of coarse grains could increase as much as 13 percent, oilseeds by 7 percent and vegetable oil 35 percent on average each year between 2013 and 2017, says the Wall Street Journal.

  • As farmers respond to artificially high prices for biofuels, farmland is diverted from crops like wheat that people consume to the feedstocks for inefficient energy production.
  • Biofuel production now absorbs 20 percent of the world's sugar cane, 9 percent of oilseeds and coarse grains, and 4 percent of sugar beets -- and more than 40 percent of U.S. corn production.

As food prices rise, both the quantity and the quality of food available to consumers in the developing world have decreased, says the study.  The report's recommendation is clear: G-20 governments should "remove provisions of current national policies that subsidize (or mandate) biofuels production or consumption."

Source: "Even the U.N. Hates Ethanol," Wall Street Journal, June 14, 2011.

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