Study: Drought and oil prices drove food crisis

By | March 16, 2010
News release posted April 1, 2010

Toronto - A new report commissioned by the UK Government has unequivocally concluded that biofuels was not to blame for the so-called food crisis of 2007/2008. "[All] available evidence suggests that biofuels had a relatively small contribution to the 2008 spike in agricultural commodity prices," the report noted. "Whilst commodity prices have fallen steeply from their peaks in 2008 biofuel demand has remained steady - indicating that the causal link from biofuel demand to short-term crop prices is still relatively weak."

The report, "The role of demand for biofuel in the agricultural commodity price spikes of 2007/08," determined that speculators responding to rapidly declining global wheat stocks caused by ongoing draught originally triggered the crisis. Furthermore, countries that panicked and imposed export restrictions on grains drove prices even higher, thereby exacerbating the situation. The simultaneous spike in crude oil prices to record levels put upward price pressure on all commodities making the food crisis a truly global event.

This food crisis event in 2008 allowed critics of ethanol to make an easy scapegoat of the industry during a period of unprecedented expansion in ethanol production. In reality, the report found that oil prices played a significant role in driving agricultural costs up, a point the ethanol industry has routinely made. "Fuel and fertilizer accounts for over half of operating costs of crop farms but many commentators ignored oil's ongoing importance as an input into agricultural production," the UK report concluded.

The report further criticized "commentators" such as the UN, World Bank and International Monetary Fund, who weighed into this debate in 2008 saying, "studies which have found a large biofuel impact across agricultural commodities have often considered too few variables, relied on statistical associations or made unrealistic or inconsistent assumptions."

"This report puts to rest once and for all the notion that biofuels contributed to the global food crisis in 2008," said Global Renewable Fuels Alliance spokesperson, Bliss Baker. "This is a lesson for us all about the dangerous impact of rising oil prices and the willingness to look to an easy answer, not necessarily the right answer."

Going forward, the report is very optimistic about the world's ability to respond to both demand for biofuels and the need for additional cropland citing vast amounts of under utilized agricultural reserves around the world. According to the report, there are "still vast reserves of under-utilized land in Europe and elsewhere in the world which can be brought into production under the stimulus of increased demand. It is estimated that there are 10 million hectares of land currently idle in Russia, Ukraine and Kazakhstan, which are likely to be brought into production if agricultural prices rise. Likewise, the arable lands of eastern and central Europe are still producing at well below their full capacity."

The Global Renewable Fuels Alliance (GRFA) is an international federation representing more than 65 per cent of the world's renewable fuels production from 30 countries. Through the development of new technology and best practices, its members are committed to producing renewable fuels with the smallest possible ecological footprint. The GRFA promotes the expanded use of ethanol and biodiesel throughout the world; advocating for sound public policy and responsible research to help meet the world's energy, environmental and economic challenges.