July 30, 2010

World Bank Concludes The Impact Of Biofuels On Food Prices Not As Large As Thought

The World Bank recently released a policy research working paper on the causes of the 2006 through 2008 commodity price boom. The paper concluded that the recent spike in food prices was largely due to energy prices.

This paper concludes that a stronger link between energy and non-energy commodity prices is likely to be the dominant influence on developments in commodity, and especially food, markets.

The paper also concluded that the role that biofuels played in the commodity price boom was not as large as once thought.

The paper also argues that the effect of biofuels on food prices has not been as large as originally thought, but that the use of commodities by financial investors (the so-called "financialization of commodities") may have been partly responsible for the 2007/08 spike.

The paper points out that biofuels account for such a small part of the overall production of grains and oilseeds that they are unlikely to have much of an impact on prices.

Clearly US maize‐based ethanol production, and (to a lesser extent) EU
biodiesel production) affected the corresponding market balances and land use in both US maize and EU oilseeds. Yet, worldwide, biofuels account for only about 1.5 percent of the area under grains/oilseeds. This raises serious doubts about claims that biofuels account for a big shift in global demand. Even though widespread perceptions about such a shift played a big role during the recent commodity price boom, it is striking that maize prices hardly moved during the first period of increase in US ethanol production, and oilseed prices dropped when the EU increased impressively its use of biodiesel. On the other hand, prices spiked while ethanol use was slowing down in the US and biodiesel use was stabilizing in the EU.

The findings of this paper are similar to the findings of several other studies that have been conducted in the past.

Placing the 2006/08 Commodity Price Boom into Perspective

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