Apologists for biofuels, hoping to dodge blame for rising food prices, want to rivet popular attention to everyone's favorite villain. Before a meeting in Rome this month of the United Nations Food and Agriculture Organization, the Global Renewable Fuels Alliance called on delegates "to focus on the real driver behind rising food cost—the price of oil." The message: Blame oil, not biofuels.
The relationship between oil and food prices is clear and undeniable. Rising oil prices lift costs of most goods. This is a simple fact at which sensible people arrive from experience and for which they do not need harrumphing press releases from interest groups like GRFA. Yet evident truth about oil prices does not explain everything about food prices. And it does not diminish the role of biofuels in food-price distress—a role that biofuels propaganda obscures with rant about oil prices.
The food dollar
In a press release, the GRFA cites a US Department of Agriculture report that "echoes the GRFA's position that oil prices are responsible for rising food prices," according to Bliss Baker, GRFA spokesperson. "The USDA estimated that 33% of every dollar spent on food goes to energy related factors."
This misrepresents the report, "A Revised and Expanded Food Dollar Series: A Better Understanding of Our Food Costs," to which the GRFA press release provides a web site link. The February report, by Patrick Canning, shows where a dollar spent on food in the US goes in the supply chain in three categories: marketing vs. farms, industry groups, and primary factors, such as wages. Energy costs appear in the industry-groups series.
USDA indeed reports an increase in the energy portion of the US food dollar. But in 2008, the latest year in the study period, that claim was nowhere near 33¢. "This series indicates that payments from each food dollar going to the energy industry group approached 7¢ in 2008, an increase of 75% percent since 1998," the report summary says. Among nine industry groups in this analysis, four accounted for greater shares of the food dollar—food services 33.7¢, food processing 18.6¢, retail trade 13.6¢, and farm and agribusiness, 11.6¢.
The report doesn't distinguish oil from other energy costs. And it doesn't mention biofuels because it wouldn't; it assesses cost distribution, not market factors. Other USDA food-price assessments make the biofuels role clear, however. In a February projection of global agricultural trends to 2020, for example, USDA provides this explanation for "historically high" prices expected for wheat, corn, and soybeans: "The continuing influence of several factors, including global economic growth, a depreciating dollar, escalating costs for crude petroleum, and rising biofuel production, underlie these crop price projections over the long term. Although corn prices fall from their current high levels, they are projected to remain historically high due to continued demand for corn for ethanol production as well as growth in feed use and exports."
The GRFA ignores all this, of course. Any suggestion that biofuels production might raise food prices detracts from the group's policy goal, which Baker expresses like this: "The world needs to take decisive action today and expand our capacity to produce reliable, clean, and sustainable biofuels in order to move away from our reliance on crude oil."
Price factors
Shifting from oil to biofuels would ease food prices only if oil prices were the main factor in food-price elevation and if biofuels had no role. Neither condition applies. Immediate nonoil factors include drought in key food-producing areas and investment flows toward commodities, which has tightened the correlation between food and oil prices. Longer-term factors in food-price strength, says a recent Deutsche Bank Research report, include demand growth in emerging economies, population growth, and "increased demand for biofuels."
GRFA ignores one other dimension of food-price dynamics. Oil prices will subside from very high levels of the present. Demand for biofuels will increase regardless of market conditions until politicians quit mandating the burning of food.
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