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World Bank: Biofuels lift food prices 75 percent

U.K.'s The Guardian newspaper excerpts "secret" World Bank study that finds biofuels have massive impact on food prices, sharply higher than U.S. government estimates.

Demand for biofuels in Europe and the United States has forced up food prices 75 percent around the world, according to a World Bank report that was leaked and published in The Guardian newspaper on Friday.

The number stands in sharp contrast to the 3 percent contribution to higher food pricing estimated by the United States Department of Agriculture.

Meanwhile, a study commissioned by food manufacturers pegs the contribution of biofuels on food prices at between 25 percent and 35 percent. (Click here for PDF).

The reports will surely heat up the debate on biofuels policy one week before the scheduled G8 meeting in Japan. Both the U.S. and Europe have biofuels mandates to lessen dependence on imported fossil fuels.

The World Bank argues that these policies have distorted the market for grains in three ways, according to The Guardian. First, crops that would have been sold for food have been diverted for biofuels production. Second, land is now being used for fuels rather than food. And third, the mandates have set off speculation in financial markets

"Without the increase in biofuels, global wheat and maize stocks would not have declined appreciably and price increases due to other factors would have been moderate," The Guardian quoted the report as saying.

The World Bank earlier this year issued a warning on biofuels and blamed them, in part, for food crises in developing countries. The Guardian said that the food impact report was delayed for political reasons, specifically not to discredit the Bush Administration's strong support for biofuels, particularly corn-based ethanol.

The wide disparity in analysis among the different parties is hard to decipher.

At the very least, it demonstrates the public relations and political battles we can expect over the coming years between supporters and detractors of biofuels. parses the political angles of the report in its post on Saturday.

A non-political research organization, New Energy Finance, published an analysis early this year that found a relatively small impact on price from biofuels policy.

Overall, it found grain prices went up about 8 percent because of biofuels, with corn affected more heavily because of U.S. policy. From the report:

In grains, during the period from 2004 to April 2008, global dollar prices increased by an average of 168 percent. The rising price of oil accounts for an increase of 32.5 percent and other inputs--such as land and labor costs--contributed 7.4 percent. Dollar depreciation accounts for a further 17.9 percent. Supply and demand imbalances account for the remaining 57.7 percent, with biofuels responsible for up to an 8.1 percent increase in global average grain prices (the impact on U.S. corn was clearly above average). The biggest issues were the failure to improve yields to compensate for global population growth, along with the failure of the Australian harvest.

Biofuels Digest has more background on the food versus fuel debate.

Update at 8:00 a.m. PT on July 8: The Wall Street Journal found that the supposedly secret report was actually a position paper from April. A final paper to be published later this week will likely conclude that the contribution of biofuels on food prices will be lower than 75 percent. See here.