Biofuel Demand Driving Up Prices

Soaring Biofuel Demand Driving Up Agricultural Prices, Says UN-Backed Report

New York, Jul 5 2007 4:00PM

Increased demand for biofuels is leading to changes in agricultural markets that could drive up global prices for many farm products, according to a new United Nations-backed report.

The Agricultural Outlook 2007-2016, published by the UN Food and Agriculture Organization (FAO) and the Organisation for Economic Cooperation and Development (OECD), blames the recent hikes in farm commodity prices on factors such as droughts in wheat-growing regions and low stocks.

Biofuels are currently made from such materials as sugar cane, palm oil and maize and, given they can substitute for fossil fuels, hold the potential to substantially reduce greenhouse gas emissions.

The growing use of these materials is underpinning crop prices and, indirectly through higher animal feed costs, the prices for livestock products, stated FAO.

The report notes that “most biofuel policies are new and it is not clear which measures are most effective in achieving the mix of objectives such as lower fossil fuel dependence or less greenhouse gas emissions.”

According to the report, annual maize-based ethanol output is expected to double between 2006 and 2016 in the United States, and in Brazil, annual ethanol production is projected to reach some 44 billion litres by 2016 from around 21 billion today.

In the European Union the amount of oilseeds used for biofuels is set to grow from just over 10 million tons to 21 million tons over the same period.

The report pointed out that higher commodity prices are a particular concern for States classified as net food importing countries, as well as the urban poor.

Trade patterns are also changing, the report noted. Production and consumption of agricultural products will generally grow faster in the developing countries than in the developed economies - especially for beef, pork, butter, skim milk powder and sugar.

Trade in beef, pork and whole milk powder is expected to grow by more than 50 per cent over the next 10 years, coarse grains trade by 13 per cent and wheat by 17 per cent. Trade in vegetable oils is projected to increase by nearly 70 per cent.

ENDS

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