Between 2005 and 2008 the prices of most major cereals almost doubled or tripled, causing violent food riots all over the world. World Bank President Robert B. Zoellick emphasised in mid-April 2008, at the peak of the price surge, that “a doubling of food prices over the last three years could potentially push 100 million people in low-income countries deeper into poverty” (WB 2008).
This price rise took place in a very short period of time and especially the rapid increase between January 2007 and April 2008 (and the immediate decline afterwards) needed an explanation. A lot of rash statements were made meanwhile and immediately after the food crisis, coming from the media, politicians and lobbies. Most of the non-academic commentaries lacked differentiation and evidence in the attempt to explain the reasons and factors which caused the price spike. Western policy makers insisted on explaining that the developing and emerging countries themselves were responsible for increasing prices “due to poor agricultural policies and changing eating habits in developing nations” as argued by German Chancellor Merkel (Reuters 2008). The media and different pro-poor lobby groups used biofuels or speculation as scapegoats for the entire price rise while the academic literature discussed the weight of these factors and added others like global economic growth, higher energy prices, declining stocks, adverse weather events and decline in agricultural investment (Elliot 2008). This paper aims to summarise the scale of influence that different factors had during the price surge, dealing especially with biofuels as a possible major cause of the crisis. Therefore, it is necessary to first examine the characteristics of the price surge. Secondly, the role of every single suspicious factor will be evaluated, and finally, the reasons behind the appearance of the most important factor will be investigated.
Table of Contents
1 Introduction
2 The Anatomy of the Price Hike
3 Possible Causes of the Food Price Crisis 2007-08
3.1 Strong growth in demand
3.2 Financial Speculation
3.3 Depreciation of the Dollar
3.4 Escalating Oil Prices
3.5 Trade Shocks: Adverse Weather, Export Bans and Import Surges
3.6 Biofuels
4 Quantifying the Impact of Biofuels on Rising Food Prices
5 Reasons Behind the Escalating Demand for Biofuels
6 Concluding remarks
Research Objectives and Key Topics
This paper aims to analyze the global food price crisis of 2007-08 by investigating the primary drivers behind the rapid surge in commodity prices, with a specific focus on evaluating the extent to which the expansion of biofuels contributed to this crisis.
- Analysis of the historical progression of global food prices during the 2007-08 crisis.
- Evaluation of various suspected causes, including market speculation, currency fluctuations, and oil prices.
- Quantification of the specific impact of biofuel production on grain and food prices.
- Examination of policy-driven incentives and market factors driving the demand for biofuels.
Excerpt from the Book
3.6 Biofuels
Most of the sophisticated studies dealing with food commodity price increases in recent years cite the large expansion of biofuels production as the major cause. Despite other factors that occurred at around the same time as the price surge but should not be accounted for it (see above), the connection between biofuels production and rising grain prices is reasonable to establish. The diversion of the maize crop from food to biofuel grew especially rapidly from 2004 to 2007 and used 70 per cent of the increase in global maize production (Mitchell 2008). In the U.S., which accounts for two-thirds of global maize exports (ibid.), maize used in ethanol production contributed for 12 per cent of total use of maize in 2004. It then increased steadily in the following years to about 32 per cent in 2008 (Collins 2008, Appendix A.4), so that total U.S. fuel ethanol production climbed 264.7 per cent over such a short period (RFA (2011), see Appendix A.5). The same picture emerges for biodiesel production in the major producing regions (EU, U.S., Brazil, and Argentina). The share of industrial use for total use of vegetable oils rose from 14.4 per cent to 18.7 per cent between 2004 and 2007 (Mitchell 2008). This trend did not only boost maize prices but also almost every other grain market due to land use changes by shifting acreage from production of other crops to maize. In the U.S., famers are mainly rotating land between maize and soybeans with very little substitution of maize for wheat (by reason of environmental conditions (Elliott 2008)). For this reason, the maize expansion resulted in a 16 per cent decline of soybean area which accounted for a 16 per cent rise in soybean prices between April 2007 and April 2008, as estimated by Mitchell (2008).
Summary of Chapters
1 Introduction: This chapter outlines the historical context of the 2007-08 food price crisis and sets the objective to evaluate the role of various factors, particularly biofuels, in the surge.
2 The Anatomy of the Price Hike: This chapter describes the rapid escalation of global food prices between 2005 and 2008 and emphasizes the timing of these increases across major cereals.
3 Possible Causes of the Food Price Crisis 2007-08: This chapter evaluates several potential contributors to the crisis, including demand growth, speculation, currency devaluation, oil prices, trade shocks, and biofuels.
4 Quantifying the Impact of Biofuels on Rising Food Prices: This chapter reviews various academic studies and models to estimate the specific percentage impact that biofuel expansion had on global food and grain price increases.
5 Reasons Behind the Escalating Demand for Biofuels: This chapter examines the legislative incentives, mandates, and economic drivers, such as crude oil prices, that pushed the production of biofuels.
6 Concluding remarks: This chapter summarizes the findings, asserting that biofuels were the main driver of the crisis and questioning the sustainability and policy benefits of current biofuel development.
Keywords
Biofuels, Food Price Crisis, Maize, Ethanol, Commodity Markets, Agricultural Policy, Price Surge, Global Food Security, Market Speculation, Energy Prices, Biodiesel, Grain Production, Inflation, Trade Shocks, Supply and Demand.
Frequently Asked Questions
What is the core subject of this publication?
The publication examines the 2007-08 global food price crisis and evaluates the extent to which the rapid expansion of biofuel production acted as a primary factor in the price surge of agricultural commodities.
What are the primary themes discussed in the work?
The main themes include the mechanics of global food price fluctuations, the impact of policy interventions on energy and agricultural markets, the role of grain diversion for fuel production, and the subsequent effects on global food security.
What is the primary research question?
The primary research question addresses whether the large-scale expansion of biofuels was the major underlying cause of the drastic food price increases observed during the 2007-08 period.
Which scientific methods are employed in this analysis?
The work utilizes a synthesis of empirical research, academic literature review, and comparative analysis of existing simulation models and indices to estimate the causal influence of different factors.
What topics are covered in the main body of the text?
The main body covers the anatomy of the price hike, an evaluation of various potential crisis triggers (speculation, dollar depreciation, weather), a quantification of biofuel impacts, and an analysis of the drivers behind the surge in biofuel demand.
Which keywords best characterize the research?
Key terms include Biofuels, Food Price Crisis, Commodity Markets, Maize, Agricultural Policy, and Global Food Security.
How did maize production specifically affect other agricultural markets?
According to the text, the shift in land use toward maize production for ethanol led to a reduction in acreage for other crops like soybeans, which in turn caused price increases in those secondary markets.
What is the author's final conclusion regarding biofuel policies?
The author concludes that biofuel expansion policies should be reconsidered, as the benefits regarding energy independence and greenhouse gas reduction are questionable compared to their negative impact on food security.
- Citation du texte
- Ronny Röwert (Auteur), 2011, The Role of Biofuels as a Possible Major Factor in the Food Crisis 2007-08, Munich, GRIN Verlag, https://www.grin.com/document/168272
