World Bank Says to End Biofuels Subsidies

A document prepared for the G20 governments by the World Bank, the World Trade Organization and eight other international agencies says that governments should stop subsidies for biofuels, according to reports this week. (The report is here.)

From Reuters:

Governments should scrap policies to support biofuels because they are forcing up global food prices, according to a report by 10 international agencies including the World Bank and World Trade Organization.…

“If oil prices are high and a crop’s value in the energy market exceeds that in the food market, crops will be diverted to the production of biofuels, which will increase the price of food,” said the report.

The report bolsters a movement to stop or reduce ethanol subsidies in the United States and elsewhere. While the ethanol industry disputes the impact of biofuels on food prices, citing economic analyses, other studies have questioned the benefits of biofuels, saying that in addition to driving up food prices, they could increase greenhouse gas emissions and contribute to water shortages.

Here are some details from the report:

During the 2007-2009 period biofuels accounted for a significant share of global use of several crops - 20% for sugar cane, 9% for vegetable oil and coarse grains and 4% for sugar beet. Projections encompass a broad range of possible effects but all suggest that biofuel production will exert considerable upward pressure on prices in the future. For example, according to one study international prices for wheat,coarse grains, oilseeds and vegetable oil could be increased by 8%, 13%, 7% and 35% respectively. Moreover, as long as governments impose mandates (obligations to blend fixed proportions of biofuels with fossil fuels, or binding targets for shares of biofuels in energy use), biofuel production will aggravate the price inelasticity of demand that contributes to volatility in agricultural prices.