The biofuels industry is being blamed for record food prices and high price volatility. Earlier this month a report from the World Trade Organization and other international agencies recommended that governments cut support for biofuels to ease that volatility. On the heels of that report, the U.S. Department of Agriculture issued its corn forecast; it suggested that corn supplies will be very tight this year because bad weather has limited planting and because the share of corn going to ethanol is increasing. After the report, corn prices shot to record highs, reaching $8 a bushel. Then on Friday, the Organization for Economic Cooperation and Development released a report predicting that food prices will remain high for the next decade.
Many experts say the unprecedented prices are at least partially driven by government subsidies and mandates that have led to fourfold increases in production of ethanol biofuel and tenfold increases in production of biodiesel between 2000 and 2009 worldwide. In the United States, multiple bills and amendments have been introduced to scale back subsidies as a way of trimming the federal budget, and on Thursday the Senate voted to end tax credits for ethanol that amounted to nearly $6 billion. (The program won’t be killed unless the House passes its own law ending it.)
The WTO report cited many reasons for the high prices and volatility, including changes in demand for food, bad weather, low stock, and the recent high cost of oil. Oil prices directly affect the production costs of food by raising the price of tractor fuel and fertilizers. If oil is expensive enough, it can also increase demand for biofuels, which drives up the price of crops such as corn and sugarcane.
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