Economist blames biofuels for crisis

One of the world's foremost meat economists has placed the blame for rising feed prices firmly at the feet of the biofuels industry.

Peter Bernard, general manager of economic planning and market services for Meat and Livestock Australia, said that most consumers in the developed world could cope with rising food prices, but, in the developing world, the situation was "very significant".

"Here consumers spend 40% of their incomes on food. In the poorest countries as much as 60/70% of expenditure is devoted to food. Food inflation in these countries over the past year has run at 15%," he said.

"This is a critical issue facing the world, condemning potentially 100m more to poverty, according to the World Bank."

Bernard said that the simple reason behind the food crisis was an increase in the price of key raw agricultural commodities, such as wheat, corn and rice. The reason that prices have risen for these commodities is that stocks across the world are at historical lows.

"Stocks act as a shock absorber for changes in demand and supply. When you don't have a stocks buffer present, even small changes can have significant price implications," he said.

The economist explained that grain stocks are low because, for much of the last seven years, consumption has exceeded production. He listed a number of supply factors contributing to this situation, including: reduced plantings, slowing yield trends, rising input costs and adverse weather conditions. Demand factors include rising populations and increased prosperity in developing nations.

Bernard said, however, that despite the myriad of factors that have contributed to the crisis, one factor could be blamed above all for the sudden rise in food prices - and that factor is biofuels.

"The real reason the price of agricultural commodities has increased so significantly over the last 12 months has to do with the biofuels policies of the world's major developed economies," he said.

"In the US in 2006, only 12% of the vast US corn crop was going into ethanol. This year it will be something approaching 30%. That corn used to act as a real shock absorber to world prices.

"In the EU there is a target to achieve 5.7% of fuel supplies from biodiesel by 2010 - that would absorb all the oil seeds produced in Europe and a lot, lot more."

Bernard accounted 50% of the global increase in demand for grains over the last two years to biofuel production. Rising food demand only accounted for 30-40% of the increase.

He added that biofuels would continue to impact on food prices for some time to come, although the US and EU governments - attracted to biofuels not only for environmental reasons but also out of concern for energy security - were starting to rethink their biofuels strategy.

"Scientific evidence says that ethanol production is a greater pollutant than just taking oil out of the ground and burning it," he said. "Word is getting around now that ethanol is not the saviour of man's energy problems."

The good news is that Euro MPS voted last week to nearly halve targets for use of biofuels in vehicles.

They recommended that 6% of road transport fuel should be crop-based by 2020. A goal of 5% from renewables by 2015, including 4% from biofuels was also agreed.

The vote comes as the UK government prepares to announce plans next month to cut its own biofuels targets. The current UK target is 5% by 2010 - twice current usage - but ministers have signalled they plan to slow the growth of biofuels as much a possible.

Ruth Kelly, the transport secretary, said she would proceed cautiously after a report by the Renewable Fuels Agency said biofuels could be increasing greenhouse gas emissions and contributing to food price increases by taking up farmland.

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