The recent rise in crude oil prices as a result of the turmoil throughout the MENA region has driven up food costs globally with some people pointing their fingers at the biofuels sector citing the age-old argument of food versus fuel.
The US saw its domestic ethanol production hit record levels in 2010 at 13.2 billion gallons, according to the Renewable Fuels Association. However, many environmentalists say that first generation biofuels like ethanol (derived from maize and sugar cane) threatens food security. And with the United Nations Food and Agricultural Organization (UN FAO) confirming on March 4 that crude oil prices are driving up food costs globally, many are beginning to blame the biofuel industry.
"The last time we saw food price inflation like we are seeing today, oil was peaking at $147 per barrel in 2008," said Bliss Baker, spokesperson for the Global Renewable Fuels Alliance. "We are witnessing a similar situation today – as crude oil prices climb so does the price of food," added Baker. In the UK, coffee has more than doubled over the past year, milling wheat has hit more than €250 a ton from around €120. National Farmers Union member Tom Hind anticipates food prices continuing their climb.
The correlation between oil and food prices is nothing new as in the early 1980s, corn and rice also saw new highs when oil prices spiked. In 2008, when oil shot up to more than $140 per barrel, corn prices hit an all-time high driving the FAO Food Index higher in addition. However, studies have been conducted on the price fluctuations in 2008 and agree with the UK Department of Environment, Food, and Rural Affairs that concur biofuels has a “relatively small contribution.”
Only 3.5% of global grain production is used to produce renewable energy fuels like ethanol. The biofuel feedstock only uses the starch from the grain; the remaining protein, fat, and minerals are used in animal feed.
Those arguing that ethanol-based fuel is a direct result of the increase in global food prices should take a look at Brazil. The South American nation farms biofuel crops on only 1% of the country’s arable land, but produces about 50% of the nation’s fuel needs. Gasoline in Brazil must contain 22% bioethanol which helped the industry become one of the world leaders in the biofuel sector, according to Suani Teixerira Coelho, the Executive Secretary of the Centro Brasilero de Referencia en Biomasa (CENBIO). Although the US economy is nine times larger than Brazil, 90% of Brazil’s electricity needs are met via renewable energy compared to the US’ staggering 9% (mostly generated from coal-fired plants).
Brazil heightened its biofuel revolution, mainly based on sugar cane, after oil prices paralyzed the country in the 1970s. And yet in February, Brazil’s inflation saw an unexpected decrease as transportation and food price increases eased according to the IPCA index.
The food/oil price parallel can be attributed to a variety of factors, but biofuel production is not one of them. An increase in oil costs affects large-scale commercial farms by driving up the pricetag to fuel heavy machinery needed for cultivation. In addition, countries are burdened with the burgeoning costs related to importing food crops. Hind added, “And many of the high prices in Britain are because of the value of the pound, with us importing more than half of what we eat.”
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