Biofuels not to blame for high food prices, study says

From the Guelph Mercury

By Rob O’Flanagan, Mercury staff
Fri Jun 17 2011

Biofuels are not the villain behind recent spikes in food prices, a new study funded by Grain Farmers of Ontario concludes.

Terry Daynard, a corn expert and retired University of Guelph crop science professor, presented the findings of his extensive report titled What are the Effects of Biofuels and Bioproducts on the Environment, Crop and Food Prices and World Hunger? on Thursday morning. The full report, co-authored by Karen Daynard, is available on the Grain Farmers of Ontario website.

Despite clear evidence that grain-based fuels like ethanol — made primarily from corn and wheat — have only a marginal impact on food prices, their production was widely blamed in 2008 and again this year for sharp increases in the cost of food in Ontario and globally.

In both years, Daynard said, one of the obvious culprits was the increased cost of oil and gasoline, which drove food transportation and production costs ups, and lead to food price increases.

“The biggest factor by far was high oil prices,” he told an audience of about 50 agricultural industry and science insiders during a Grain Farmers of Ontario breakfast gathering at the Victoria East Golf Course.

In 2007-2008, poor wheat crops in Australia and parts of Europe also contributed to spikes in grain prices, and commodity futures speculation also drove prices up. Strain on food grain supplies from biofuels, Daynard indicated, was a negligible factor. Basically the same global factors are at play this year, once again driving food prices up.

“There are so many other influencing factors involved,” said Barry Senft, CEO of Grain Farmers of Ontario. “Oil prices have significantly more effect on food prices than ethanol.”

He said in 2008, biofuels were an easy target for those looking for reasons for the increase in grain prices, which translated into increase food prices.

“The other interesting issue that few people talk about is the speculation in the grain market,” he added. “That hadn’t been there before, but it was there in 2008.” Similar market speculation is taking place now.

Historical trends show that grain prices are likely to come down in the not-too-distance future, Daynard predicts, as global factors like increasing agricultural production in the developing world impact the market.

Biofuel production helps stabilize grain prices, adding about 50 cents to the price of a bushel of corn in Ontario, Daynard said. That increase is offset at the gas pump where ethanol blends help depress the price of gasoline. Without ethanol, the price of gas would be six to 10 cents higher, he added.

“If we didn’t have ethanol we’d have corn at 50 cents a bushel less than current prices,” Daynard said, adding that without ethanol support, corn prices would drop by 15 per cent in North America. In addition, biofuels have the greatest impact on corn prices, but only a marginal affect on the price of other grains.

There is a great deal more capacity in North America to produce biofuels, he said. And as viable new farm lands open up in places like Africa, Latin America and the Caribbean, Canadian farmers may find that biofuel production offers a strong alternative market for their grain.

Canada produces about 1.8 billion litres of fuel ethanol and 110 million litres of biodiesel per year. Biodiesel is largely produced from used cooking oils and animal fats. These numbers will have to increase significantly to meet new Canadian biofuel use mandates, Daynard said. About 5.7 per cent of global grain production and 10 per cent of global vegetable oil production goes into the production of ethanol and biodiesel.

The study concludes that, when a host of factors are taken into account, a 10-per-cent ethanol blend in gasoline results in a 62-per-cent reduction in net greenhouse gas emissions.