Growing bio-fuel demand underpinning higher agriculture prices

[timouse]

OECD new release (pdf)

Growing bio-fuel demand underpinning higher agriculture prices

Joint OECD-FAO report published

Paris/Rome, 4 July 2007 - Increased demand for bio-fuels is causing

fundamental changes to agricultural markets that could drive up world

prices for many farm products, according to a new report published by

the OECD and FAO.

The OECD-FAO Agricultural Outlook 2007-2016 says temporary factors

such as droughts in wheat-growing regions and low stocks explain in

large measure the recent hikes in farm commodity prices.

But when the focus turns to the longer term, structural changes are

underway which could well maintain relatively high nominal prices for

many agricultural products over the coming decade.

Reduced crop surpluses and a decline in export subsidies are also

contributing to these long-term changes in markets. But more

important is the growing use of cereals, sugar, oilseed and vegetable

oils to produce fossil fuel substitutes, ethanol and bio-diesel. This

is underpinning crop prices and, indirectly through higher animal

feed costs, also the prices for livestock products.

In the United States, annual maize-based ethanol output is expected

to double between 2006 and 2016.

In the European Union the amount of oilseeds (mainly rapeseed) used

for bio-fuels is set to grow from just over 10 million tonnes to 21

million tonnes over the same period.

In Brazil, annual ethanol production is projected to reach some 44

billion litres by 2016 from around 21 billion today. Chinese ethanol

output is expected to rise to an annual 3.8 billion litres, a 2

billion litres increase from current levels.

The report points out that higher commodity prices are a particular

concern for net food importing countries as well as the urban poor.

And while higher feedstock prices caused by increased bio-fuel

production benefits feedstock producers, it means extra costs and

lower incomes for farmers who need the feedstock to provide animal

feed.

Trade patterns

The Outlook also says trade patterns are changing. Production and

consumption of agricultural products in general will grow faster in

the developing countries than in the developed economies - especially

for beef, pork, butter, skimmed milk powder and sugar. OECD countries

are expected to lose export shares for nearly all the main farm

commodities. Nevertheless, they continue to dominate exports for

wheat, coarse grains and dairy products.

World agricultural trade, measured by global imports, is expected to

grow for all the main commodities covered in the Outlook, but likely

by less than for non-agricultural trade, as import protection is

assumed to continue to limit the growth in trade. Nevertheless, trade

in beef, pork and whole milk powder is expected to grow by more than

50 percent over the next 10 years, coarse grains trade by 13 percent

and wheat by 17 percent. Trade in vegetable oils is projected to

increase by nearly 70 percent.

[Blane]

and this will lead to a higher fuel demand for factory farming, transport and processing of fuel crops, which will lead to higher demand for bio-fuel. And the cycle continues.

I used to have this sticker that said "economists need to learn how to subtract"....

[timouse]

I used to have this sticker that said "economists need to learn how to subtract"....

that's brilliant.

i would like to see "externality" removed from the dictionary.

[Biggest Fan]

I live in southeastern Pennsylvania ( outside of Philly) and we are having major mass transit funding issues. A complete joke. You always see raod construction but how about the alternative. I know I am preaching to the choir and all but it is a bit irritating. The use of food stuffs as use for fuel really does not make much long term sense.

***A serious joke- Can hemp used as an alternative fuel? Brazil has that sugar cane thing going but I do not think that would be such a viable crop in the north.

[timouse]

Can hemp used as an alternative fuel? Brazil has that sugar cane thing going but I do not think that would be such a viable crop in the north.

hempseed oil makes quite a nice bio-diesel.

personally i really question the wisdom of sucking all the goodness out of the ground and burning it in our cars. nowhere in all this biofuel debate does anyone talk seriously about conserving fuel by changing our transportation habits.