The biofuel factor in rising food prices

Biofuel gets a bad rap when it comes to the surging cost of food around the globe. It's just one small part of a larger problem.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
4 min read

What's causing the global rise in food prices? Everything.

Growing demand for food in emerging nations, wheat crop failures, currency fluctuation, speculation in the commodities market, hastily conceived government policies, and the growing demand for biofuels have all--among other factors--converged to drive up the price of food, experts say.

"Those who say it's all the fault of biofuels are wrong and those that say that none of the fault belongs to biofuels are wrong," said Walter Falcon, a professor emeritus of international agricultural policy at Stanford University and co-director of Stanford's Center for Environmental Sciences and Policy. "There is no doubt biofuels have added to the problem, but biofuels are not causing the demand for meat and soybeans for feed in China...There are a half a dozen things going on and it's hard to sort out who gets the blame."

Due to puccinia striiformis, a form of wheat rust, crop losses of 40 percent are common and total crop failure can occur. Rust and drought severely impacted the wheat crop last year. USDA

The severity of the problem has been highlighted by recent violent food riots in Egypt, Cameroon, Haiti, and other emerging nations.

The World Bank also issued a report Monday saying that the surge in prices could push 100 million people into deep poverty. The International Monetary Fund has asked developed nations to put forth solutions to avert even larger shortages.

Meanwhile, several analysts have asserted that demand for biodiesel is prompting speculators in Malaysia and other tropical nations to cut down forests to plant soybeans and other oil crops. The deforestation in turn creates greenhouse gases that can displace a lot of the benefits of burning cleaner fuels.

While biofuels often tend to get mentioned as a cause of skyrocketing food prices, the complexity of the situation is mind-boggling. As a result, fixing it in a relatively straightforward manner doesn't seem likely. (Other experts painted a similar, dour picture for CNET News.com during interviews at the Clean Edge conference earlier this year.)

Steady pressure on food prices has been building for several years because of consumption in emerging nations, said Roz Naylor, a senior fellow at Stanford studying the correlation of food prices and biofuels. That accelerated after outbreaks of wheat rust in India and Pakistan and droughts in Ukraine and Australia.

"I would say that the trigger factor last year was the drought that caused the wheat to go down," she said.

Exchange rates have also contributed. Because the shrinking dollar makes U.S. food cheap, other nations can and do buy more food grown here.

Biofuel programs, particularly in the U.S., have also prompted speculators to drive up prices. Biofuels, she added, "are a contributing factor, but they aren't the only one."

Then there are policy triggers, Falcon said. India has imposed bans on the export of non-fragrant rice. That will likely cause rice prices to spike this year.

You can even add rising oil prices to the mix, Falcon added. Pesticides and fertilizer depend on fossil fuel products. Shipping prices are also on the rise: grain transporters have to compete for space on cargo vessels with other bulk products coming to and from China.

This chart shows domestic corn consumption and use. It's going up faster than available cropland. USDA

Corn is probably the commodity most directly impacted by biofuels. An estimated 25 to 30 percent of the U.S. corn crop goes to ethanol, said Ken Cassman, a professor of agronomy and horticulture at the University of Nebraska-Lincoln. (Worldwide, ethanol accounts for around 5 percent of grain production, according to statistics from the Earth Policy Institute.)

"That amount of demand has come out of nowhere," he said. "Three years ago, the amount of corn used for ethanol was rather small and no one predicted this."

The spike in corn prices began with the Energy Security Act of 2005, which increased the goal for ethanol use in the U.S., and Hurricane Katrina. Replacing the gas additive MTBE also contributed.

Still, it's not a completely clear picture. Increasing meat consumption in China has driven up the price of feed. Meat consumption isn't nearly as large in India, but there is growing demand for milk and cheese, and cows need feed to provide that.

In 2007, farmers shifted acres of soybeans over to corn production. While that partly ameliorated corn prices, it caused soy prices to rise. In turn, that has contributed to the rise in meat prices because soy is a feedstock.

Interestingly, in 2008, farmers are expected to convert a lot of those corn acres back to soy.

"When you shift out of corn, other crops become more valuable," Cassman said.

Cellulosic ethanol, produced from wood chips, and algal biodiesel could begin to lessen the demand for grains and beans in the fuel industry. Both industries, though, are in the experimental phases.