Ethanol and food prices – Preliminary assessment |
Apr 2008
|
Food prices in the U.S. rose dramatically in 2007 and early 2008. Given the integration of the world markets for foodstuffs, prices increased around the world as well, leading to riots in a number of countries in early 2008. The popular press has tended to attribute these food price increases to demand for corn by the ethanol industry.
Grain prices are one determinant of food prices, but they constitute less than 5% of food costs in the U.S. (a higher percentage elsewhere.) Other factors that may have contributed to food price increases. Rising energy prices have clearly increased both food processing and transportation costs. Rising world demand and some crop failures are other potential contributors to increases in world grain prices, along with speculative activity.
This preliminary assessment considers the potential impact of these various components, with emphasis on the role of ethanol as one component.
It concludes that it would be reasonable that ethanol is responsible for increases in US food prices about 1% in the last two years – a relatively small proportion of actual of U.S. food price increases. In food-insecure areas of the world, however, the impact of ethanol on food prices has been higher, perhaps as much as a 15% increase, simply because the typical food basket in those areas contains more direct grain consumption.
|
