ETHANOL AND OTHER BIOFUELS PUSHING UP FOOD PRICES

by Eli Clifton

(IPS) WASHINGTON -- A dramatic increase in the production of biofuels has led to rising food prices with serious implications for developing countries reliant on food aid to combat famine.

Perceived by many in Washington as a clean, renewable energy source capable of insulating the U.S. from rising oil prices and instability in the Middle East, as well as revitalising the lagging agricultural industry in the Midwestern United States, policy makers have advocated agro-fuels as an alternative to imported oil.

The increasing rate of ethanol production has predictably led to increases in the cost of corn -- nearly doubling in the past year -- and policymakers have warned that U.S. demand for biofuels will likely spread to South American and South East Asian sugar- and palm oil-producing regions which are capable of producing ethanol more efficiently than with the U.S. corn-based methods.

According to World Bank price indexes, worldwide basic food commodities now cost 21 percent more than in 2005 and important commodities such as grain and oil have gone up in price more than 30 percent.

United Nations World Food Program (WFP) Executive Director Josette Sheeran pointed to the role of biofuels in driving up food prices during an interview with the Financial Times last week.

She acknowledged that rising food prices were "already having an impact on WFP operations." "There is a realization we are facing a new level of challenges," she added.

Food prices have surged for other reasons over the past year, including increased demand from China and bad weather. However, the growing global demand for biofuels in the U.S. and a proposal by the European Commission stipulating that all petrol and diesel in the European Union must contain 10 percent biofuels could spell serious environmental and economic consequences.

"In the case of the developing countries where sugar cane and palm oil are efficient sources of biodiesel that means we're going to see enormous growth in the tropics and subtropics in both ethanol and biodiesel," Earth Policy Institute president Lester Brown told IPS. "What this is going to lead to is very rapid deforestation if no one intervenes. It is leading to a lot of land clearing in the Amazon, Indonesia and Malaysia."

Brazil has already announced that it will ban new sugarcane fields in the Amazon region and in the vast Pantanal wetland, but the full economic and environmental impact felt by equatorial regions in their rush to produce biofuels is still of concern to analysts.

In countries such as Brazil, farm sizes are much larger than in the United States and Europe, meaning that a smaller portion of the population will benefit from price increases in food products while the majority of the people will only experience the price increases when they buy food.

"We used to have a food economy and an energy economy but now the two are merging. You can't draw a line between the two anymore," said Brown. "The world price of grain has moved up towards it oil price equivalent value."

With the price of oil and food no longer separated, economic and political turmoil will have a greater effect on the price of food products worldwide.

The UN World Food Program hasn't needed to reduce any of their operations yet, but has warned that the current trend in food prices will eventually force them to cut back some of their projects if donor countries do not contribute additional funds.

"(Biofuel) is a dangerous alternative because of the effect of food prices and political instability. It could generate a degree of political instability that could disrupt global economic progress," said Brown. "If you want to know what will happen to the price of food, look at the price of oil."

With developing countries being both the largest recipients of food aid and increasingly the most important source of biofuels, it is likely that the greatest impacts of the biofuel industry and its resulting economic and environmental effects will be experienced in these already impoverished regions.