28 CHAPTER 2
prices predates that in food prices, which at least suggests the possibility that rising energy prices caused food prices to increase, rather than the reverse. However, we also attribute a large role to demand-side factors that would have interacted with supply-side factors affecting production costs. If the supply curve alone had shifted upward because of rising fuel prices, the profits of farmers and food wholesalers would not normally be expected to rise much unless demand was very inelastic. Because U.S. farmers (and major firms, such as Cargill) experienced sharply rising profits in 2006, 2007, and 2008 (see Appendix Table A.2), it can safely be inferred that demand factors are also important contributors to rising food prices. Indeed, we argue below that biofuels and import surges are two highly significant sources of demand growth.
Biofuels
The third and newest link between oil prices and food prices is biofuels. Once oil prices exceed US$60 a barrel, biofuels become more competitive, and grains may be diverted to biofuel production (Schmidhuber 2006), especially if high oil prices are expected to persist. Most of the more rigorous analyses to date conclude that the diversion of the U.S. maize crop from food to biofuel uses constitutes the largest source of international biofuel demand and the largest source of demand-induced price pressure (Abbott, Hurt, and Tyner 2008; Mitch- ell 2008; Schepf 2008; von Braun 2008a). The reasons are as follows: 1. The use of maize for ethanol grew especially rapidly from 2004 to 2007, and ethanol production used 70 percent of the increase in global maize production.
2. The United States is the largest producer of ethanol from maize and is expected to use about 81 million tons for ethanol in the 2007/08 crop year (USDA 2008a).
3. The United States accounts for about one-third of global maize produc- tion and two-thirds of global exports, so impacts on U.S. production easily affect international prices (Mitchell 2008).
4. European biofuel production is concentrated on biodiesels and uses about 7 percent of global vegetable oil supplies (amounting to about one-third of the increase in vegetable oil consumption from 2004 to 2007).
5. Biofuel production in other parts of the world is either relatively small or uses different crops (for example, sugarcane in Brazil), which have not experienced price surges.
Biofuels constitute a major new source of demand in maize and vegetable oil markets, so biofuels are an especially strong candidate to explain price rises in these markets. But the knock-on effects for other foods are also sig-
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140 |
Page 141 |
Page 142