Biodiesel Myth (Or Fact?) #23: Biodiesel is Raising Food Prices
[social_buttons] Increased world demand for grains and vegetable oils due to population growth (esp. in China and India), the weak dollar, agricultural production problems around the world, and $100/barrel oil are some of the driving factors accounting for increasing food prices.
After covering 22 of the most popular myths about biodiesel, I realized I’d only given lip service to a major issue: increasing food prices. In Myth #2, I mentioned that the goal of biodiesel production is to move away from food-based feedstocks.
But until that happens, the question remains: if I use biodiesel made from soybeans right now, am I contributing to the larger problem of increasing commodity prices and starving poor people?
- The United States is the world’s largest producer and exporter of soybeans.
- Soybean prices approached a 33-year high last fall, while overall food prices had their biggest jump in 16 years (according to economists). Food inflation rose about 4% in 2007 compared to an annual average of 2.5%.
- World soybean consumption this year is expected to be up 13.2% over two years ago.
- Biodiesel production in the US accounted for 2.8 billion lbs. of soybean oil last year, which amounts to an estimated 20% of the total domestic consumption of soybean oil.
- Soybeans directly compete with corn for agricultural land. Soybean acreage is expected to decline over the next few years due to high demand for corn, which directly increases the price of soybeans.
- Biodiesel production in 2007 was estimated at 450 million gallons. Corn-based ethanol production is expected to exceed 10 billion gallons by 2009.
Taking this into account, it looks like both soy-based biodiesel and corn-based ethanol (even more so) are at least partly to blame for increasing food prices. But that’s not the whole story. Even corn-based ethanol, which is produced in volumes greatly exceeding biodiesel, may only be responsible for 0.2% – 0.3% of the total 4% increase in food prices over the last year.
According to Brent Searle, Special Assistant to the Director at the Oregon Department of Agriculture, food inflation as a whole can’t be pinned to a single source. Responding via email, Brent said that no single study has sorted out all the issues, but several studies have documented how much petroleum prices are affecting things. The 4-5% food price increase in 2007 has been attributed to:
- 0.2% – 0.3% due to ethanol use of corn
- 0.8% – 1% due to gasoline/fuel price increases
- 3.5 – 4 % due to other causes
Here’s an even more thorough list list of the factors affecting food prices (also received via email):
- A growing middle class in Latin America and Asia that can afford more meat and milk, which has driven up demand for grain to feed cattle and hogs.
- A drought in Australia in 2006 and 2007 reduced the supply of milk and wheat available for export.
- Low worldwide wheat prices the past several years have led growers to plant less wheat; additionally, grain traders store less wheat today with “just in time” deliveries, and there are no current government incentives for farmers to store wheat on farm. All this has led to record low wheat stocks, causing wheat prices to soar.
- Regional pests, diseases, freezes, droughts, floods and other natural disasters all impacted fresh fruits, vegetables, and other produce availability and price.
- Increases in labor costs, as state and federal minimum wages ratchet up, from farm to processing and the restaurant, affect food prices. 40% of the retail food price is related to labor costs after food leaves the farm.
- Rising fuel costs, over $100 per barrel, making it more expensive to grow, process, refrigerate, and transport food from the producers to stores and restaurants — impacts all aspects of the food chain.
- Personal choices – for example, organic milk costs nearly double conventional milk; consumers are choosing to pay higher prices based on preferences.
- Dollar decline — makes food imports more expensive at the store and creates greater demand for US ag exports. Approximately 30% of fruits and vegetables consumed in the US are imported. They are now more expensive.
- Corporate profits — an excuse to hike prices. Kroger, 4th quarter 2007 sales up 10% and profits up 18%. Kroger stated it paid 3% more for products. “In our view, periods of moderate inflation is a positive for our business because inflation tends to improve sales.”– VP Rodney McMullen, Jan. 2008. Safeway, sales up 3%, profits up 12%.
- Marginal impacts from Ethanol demand for corn (US) and sugarcane (Brazil).
So where does that leave us? This topic is worth more serious conversation and analysis than can be summed up in a single blog post. My gut is telling me that the most important factors affecting food prices are the price of oil and increasing worldwide food demand, but all of the factors above may play a role.
I would also wager that corn-based ethanol, which will require about 30% of the US corn harvest by 2015, is a much bigger culprit than soy-based biodiesel if either one is significantly contributing to rising food costs. If you’re worried about using retail biodiesel, talk to your supplier about the source of their oil, and do more research with the links below.
I’m sure you have an opinion about this. What do you think? (Let me just repeat that I am all in favor of non-food based biofuels, some of which were listed in the rest of the biodiesel mythbuster).
Posts Related to Increasing Food Costs:
- European Union Defends Biofuel Targets As Food Prices Soar
- “Perfect Storm” Inflating Food Prices Worldwide
- 2015: 30% of US Corn Harvest Will Be Gasoline
USDA Economic Research Service: Soybean and Oil Crops Briefing Room, and
Reuters (Aug. 8, 07): Cooking Oil to Further Fuel Global Food Inflation
ThePoultrySite.com (Mar. 18, 08): Weekly Outlook: Focus On Soybean Oil
Special thanks to Brent Searle for providing this information.