Impact of biofuel production and other supply and demand factors on food price increases in 2008

Abstract

The prices of some grain commodities more than doubled from March 2007 to March 2008. Increased food prices coincided with increasing global biofuel production, leading to speculation that biofuel production was responsible for the increased food prices. However, over the six-month period after March 2008, grain prices declined by 50% while biofuel production continued to increase. It is not possible to reconcile claims that biofuel production was the major factor driving food price increases in 2007–2008 with the decrease in food prices and increase in biofuel production since mid-2008. The available data suggests that record grain prices in 2008 were not caused by increased biofuel production, but were actually the result of a speculative bubble related to high petroleum prices, a weak US dollar, and increased volatility due to commodity index fund investments. Many factors converged in 2007–2008 to increase food and related commodity prices including increased demand, decreased supply, and increased production costs driven by higher energy and fertilizer costs. Disentangling these factors and providing a precise quantification of their contributions is a difficult, perhaps impossible, task. In 2008, several reports were published by governmental and international agencies that speculated on the cause of increased food prices worldwide. Taken together, the available analyses suggest that biofuel production had a modest (3–30%) contribution to the increase in commodity food prices observed up to mid-2008. The development of second-generation biofuels (e.g., cellulosic ethanol) which use non-food residual biomass or non-food crops should mitigate any future impact of biofuel production on food prices.