NCPA - National Center for Policy Analysis

Biofuels Responsible for Surge in Food Prices

June 29, 2011

The current price surge in crops reflects a shortfall in supply to meet demand, which forces consumers to bid against one another to secure their supplies.  Soaring farm profits and land values support this explanation.  What explains this imbalance, asks Timothy Searchinger, a research scholar at Princeton University.

Crop production has not slowed: total world grain production last year was the third highest in history.  Indeed, it has grown since 2004 at rates that, on average, exceed the long-term trend since 1980 and roughly match the trends of the past decade.  The problem is therefore one of rapidly rising demand.

Conventional wisdom points to Asia as the source, but that's not so.  China has contributed somewhat to tighter markets in recent years by importing more soybeans and cutting back on grain exports to build up its stocks.  But consumption in China and India is rising no faster than it has in previous decades.  In general, Asia's higher incomes have not triggered the surge in demand for food.  That starring role belongs to biofuels.

  • Since 2004 biofuels from crops have almost doubled the rate of growth in global demand for grain and sugar and pushed up the yearly growth in demand for vegetable oil by around 40 percent.
  • Increasing demand for corn, wheat, soybeans, sugar, vegetable oil and cassava competes for limited acres of farmland, at least until farmers have had time to plow up more forest and grassland, which means that tightness in one crop market translates to tightness in others.
  • Overall, global agriculture can keep up with growing demand if the weather is favorable, but even the mildly poor 2010 growing season was enough to force a draw down in stockpiles of grain outside China, which sent total grain stocks to very low levels.
  • Low reserves and rising demand for both food and biofuels create the risk of greater shortfalls in supply and send prices skyward.

Governments can stop the recurring pattern of food crises by backing off their demands for ever more biofuels, says Searchinger.

Source: Timothy Searchinger, "A Quick Fix to the Food Crisis," Scientific American, June 16, 2011.

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