A Dutch University is challenging the notion that the diversion of grains from food to biofuels is responsible for the spikes in agricultural commodity and food prices over the last two years.  The university’s findings likely will be welcomed by the biofuels industry in the context of the political and policy debate over the potential impact on food prices from biofuel requirements in the US and abroad. 

Wageningen University and Research Centre (Wageningen UR) in the Netherlands has analyzed  the factors influencing the rapid rise in worldwide food prices in a series of reports over the last five months.  Noting that the actual “long-term trend of world food prices is declining” in light of technological advances that continue to increase land productivity, the university cites a number of factors that it suggests have affected the recent trend in rising food prices:  

• High energy costs that led to higher costs for artificial fertilizers and fuel, as well as higher transport; costs for grains that travel long distances to market;
• Poor harvests of wheat and barley in Australia, Ukraine and Europe;
• Export taxes in Argentina, Kazakhstan, India, Vietnam and Egypt designed to protect domestic food supplies;
• Production limitations for food products in the European Union; and
• Rapidly growing demand in the developing world, particularly Asian countries that are increasing consumption of meat products.

The university has also considered the impact on food prices from increased demand for agricultural commodities from the biofuels industry, as well as the impact of speculative investments in food crops.  Wageningen UR concluded that, while such factors may cause marginal changes to food prices in the short term, they appear far less important than other factors.  Recent price data appears to support Wageningen’s analysis.  For example, Wageningen points out the rise and subsequent drop in corn and other commodity prices correlates closely to the fluctuations in oil prices.  In contrast, Reuters recently reported that corn prices have dropped roughly 50% since June, from $7.65 to $3.85 per bushel, despite a steady rate of domestic ethanol production during the same time period.

The Wageningen UR analysis offers additional context for policymakers and investors examining how best to diversify the nation’s energy strategy and balance the shifting economic factors affecting the energy, food and agriculture sectors.

For further information about this topic, please contact Akin Gump.