Domestic Fuel

A new report commissioned by the UK’s Department for Environment, Food and Rural Affairs (DEFRA) has concluded that drought and high oil prices, not biofuels, were behind the so-called food crisis of 2007/2008.

“Available evidence suggests that biofuels had a relatively small contribution to the 2008 spike in agricultural commodity prices,” the report noted. “Studies which have found a large biofuel impact across agricultural commodities have often considered too few variables, relied on statistical associations or made unrealistic or inconsistent assumptions.”

The Global Renewable Fuels Alliance (GRFA) welcomed the report’s findings. “This food crisis event in 2008 allowed critics of ethanol to make an easy scapegoat of the industry during a period of unprecedented expansion in ethanol production,” said GRFA spokesperson Bliss Baker. “This is a lesson for us all about the dangerous impact of rising oil prices and the willingness to look to an easy answer, not necessarily the right answer.”

The report found that speculators responding to rapidly declining global wheat stocks caused by ongoing drought originally triggered the crisis, which was exacerbated by countries imposing export restrictions on grains that drove prices even higher. The simultaneous spike in crude oil prices to record levels put upward price pressure on all commodities making the food crisis a truly global event. “The primary impact of high oil prices on agricultural commodities seems still to be through the supply-side, via increased costs of production, rather than the emerging demand-side channel of biofuels,” the report noted. “Fuel and fertiliser account for over half of operating costs of crop farms but many commentators have ignored oil’s ongoing importance as an input into agricultural production.”

Going forward, the report is very optimistic about the world’s ability to respond to both demand for biofuels and the need for additional cropland citing vast amounts of under utilized agricultural reserves around the world.

Read the full report here.