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Biofuels Are Not to Blame for High Food Prices, Study Finds

Biofuels may not be as bad as many of its critics believed.

Speculators were the principal cause for the rise in corn prices during the summer months, according to a new report by Global Insight, a Boston, Mass.-based consulting firm. In other words, biofuels are not to blame.

“The record high prices were a speculative bubble,” said Stewart Ramsey, senior economist for Global Insight, Philadelphia.

In 2007, U.S. food prices, which normally rise roughly 2.5% annually, jumped 4% higher, the biggest increase in 17 years. World food prices jumped a stunning 40%. The government has forecast that U.S. food prices will rise 5.5% this year and 4.5% in 2009.

Meanwhile, the Chicago Board of Trade reported that corn futures reached nearly $8 per bushel this summer while they currently hover under $4 per bushel. In fact, although ethanol production in Canada is currently growing, and production in the United States remains at record highs, the price of corn on global markets has fallen nearly 50%.

“Ethanol production in Canada is up, and yet the price of corn is now at a more moderate levels. Ethanol cannot now stand as the cause of food prices increases - the facts don’t support it,” said Gordon Quaiattini, President of the Canadian Renewable Fuels Association. “We have always maintained that record oil prices and speculators were to blame for the increase in the price of food this summer.”

Ethanol (used as fuel) does increase the price of grain in the United States. Analysts say ethanol demand adds about 75 cents to $1.00 per bushel to the price of corn. Other analysts say it adds around 20 percent, or just under 80 cents per bushel at current prices. Those estimates suggest that $4 per bushel corn might be priced at only $3 without demand for ethanol fuel.