The Role of Biofuels as a Possible Major Factor in the Food Crisis 2007-08

Seminar Paper , 2011 , 22 Pages , Grade: 1,3

Economics - International Economic Relations

Between 2005 and 2008 the prices of most major cereals almost doubled or tripled, causing violent food riots all over the world. World Bank President Robert B. Zoellick emphasised in mid-April 2008, at the peak of the price surge, that “a doubling of food prices over the last three years could potentially push 100 million people in low-income countries deeper into poverty” (WB 2008).
This price rise took place in a very short period of time and especially the rapid increase between January 2007 and April 2008 (and the immediate decline afterwards) needed an explanation. A lot of rash statements were made meanwhile and immediately after the food crisis, coming from the media, politicians and lobbies. Most of the non-academic commentaries lacked differentiation and evidence in the attempt to explain the reasons and factors which caused the price spike. Western policy makers insisted on explaining that the developing and emerging countries themselves were responsible for increasing prices “due to poor agricultural policies and changing eating habits in developing nations” as argued by German Chancellor Merkel (Reuters 2008). The media and different pro-poor lobby groups used biofuels or speculation as scapegoats for the entire price rise while the academic literature discussed the weight of these factors and added others like global economic growth, higher energy prices, declining stocks, adverse weather events and decline in agricultural investment (Elliot 2008). This paper aims to summarise the scale of influence that different factors had during the price surge, dealing especially with biofuels as a possible major cause of the crisis. Therefore, it is necessary to first examine the characteristics of the price surge. Secondly, the role of every single suspicious factor will be evaluated, and finally, the reasons behind the appearance of the most important factor will be investigated.

Inhaltsverzeichnis (Table of Contents)

• Introduction
• The Anatomy of the Price Hike
• Possible Causes of the Food Price Crisis 2007-08
  • Strong growth in demand
  • Financial Speculation
  • Depreciation of the Dollar
  • Escalating Oil Prices
  • Trade Shocks: Adverse Weather, Export Bans and Import Surges
  • Biofuels
• Quantifying the Impact of Biofuels on Rising Food Prices
• Reasons Behind the Escalating Demand for Biofuels
• Concluding remarks

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This paper examines the factors that contributed to the global food price crisis of 2007-08, with a particular focus on the role of biofuels. The paper aims to summarize the influence of different factors on the price surge, evaluate the contribution of each factor, and investigate the reasons behind the emergence of biofuels as a significant factor. It seeks to understand the impact of policy-driven factors, such as biofuel production and speculation in futures markets, on food prices.

• The anatomy of the price hike and its characteristics.
• The role of various factors, including strong demand growth, speculation, oil prices, and trade shocks, in the food price crisis.
• The impact of biofuels on rising food prices.
• The reasons behind the escalating demand for biofuels.
• Potential policy implications for the future.

Zusammenfassung der Kapitel (Chapter Summaries)

The introduction highlights the significance of the 2007-08 food crisis, which saw global food prices reaching record highs. It discusses the lack of attention agricultural commodity markets typically receive, the impact of the crisis on consumers, and the need for an explanation of the rapid price surge. The paper outlines its objective to analyze the role of biofuels in the crisis.

The second chapter examines the anatomy of the price hike, noting the stability of food prices in the early 1980s to early 2000s and the sharp reversal of this trend starting in 2002. It provides data on the FAO Food Price Index (FFPI) and grain prices, highlighting the rapid increase between 2006 and 2008 and the subsequent plunge. The chapter emphasizes the interconnectedness of grain prices due to substitution effects.

Chapter three delves into the possible causes of the food price crisis, acknowledging the complexity of the issue and the role of multiple interacting factors. It discusses the importance of understanding policy-driven factors, such as biofuel production, export-import policies, and speculation.

Chapter four focuses on the impact of biofuels on rising food prices, while chapter five explores the reasons behind the escalating demand for biofuels.

Schlüsselwörter (Keywords)

The key terms and concepts explored in this paper include: food price crisis, biofuels, agricultural commodity markets, demand growth, speculation, oil prices, trade shocks, policy implications, FAO Food Price Index (FFPI).

• College: University of Freiburg (Institut für Volkswirtschaftslehre und Finanzwissenschaft I)
• Course: The Economics and Politics of Global Agriculture and Trade
• Grade: 1,3
• Author: Ronny Röwert (Author)
• Publication Year: 2011
• Pages: 22
• Catalog Number: V168272
• ISBN (eBook): 9783640852239
• ISBN (Book): 9783656058557
• Language: English
• Tags: Biofuels, Food Crisis, Food Price Crisis, Food vs Fuel, Renewable Fuels, Biofuel, Commodity, Food Prices, 2007, 2008, 2007-2008