CAUSES OF THE CRISIS 29


nificant. In the United States, rapid expansion of maize area by 23 percent in 2007 resulted in a 16 percent decline in soybean area, which reduced soybean production and contributed to the 75 percent rise in soybean prices from April 2007 to April 2008 (Mitchell 2008). In Europe other oilseeds displaced wheat for the same reason.


Another knock-on effect of significant concern is that biofuels have added substantially to the depletion of grain stocks. Several studies try to estimate these effects. Mitchell (2008) estimates that had areas planted in vegetable- oil crops for biodiesel been used for wheat production, European wheat stocks would almost have been as large in 2007 as they were in 2001 rather than lower by almost half (although it is not clear that in the absence of bio- fuel production farmers would have increased areas devoted to wheat). The U.S. maize story is also different, because even though some “new” land was diverted to maize production, most of the maize provided for biofuel produc- tion came from existing land and from production that would otherwise have been used to feed people or livestock.7


Several formal studies have simulated the effects of various biofuel sce-


narios on food prices. Generally, these simulations are difficult to compare, because they can vary substantially in terms of time periods considered, prices used (export, import, wholesale, and retail), coverage of food prod- ucts, the currency in which prices are expressed, and whether prices are real or nominal (Schepf 2008). Different methodologies will typically give differ- ent outcomes. General equilibrium models generate long-term price impacts resulting from specific shocks by factoring in interactions among markets, but their ability to capture short-term price dynamics is highly constrained. Con- versely, detailed studies of specific crops may include the short-term dynam- ics, but they often exclude the impact on other markets. There are also issues of whether shocks are considered to be independent (Schepf 2008). In spite of these methodological variations, most studies find biofuel production to be a significant driver of food price trends, as Schepf’s (2008) review of these studies concludes. In terms of short-run studies, the Interna- tional Monetary Fund (IMF) estimates that biofuel demand has accounted for 70 percent of the increase in maize prices and 40 percent of the increase in soybean prices so far (Lipsky 2008). Collins (2008) used a mathematical simu- lation to estimate that about 60 percent of the increase in maize prices from 2006 to 2008 may have been due to the increase in maize used for ethanol. The Council of Economic Advisors (Lazear 2008) estimates that retail food


7 Even the USDA suggests that biofuel diversion in the United States is a much larger source of demand than increased demand from China (see Helbling, Mercer-Blackman, and Cheng 2008, figure 4).


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