Analyst Calls Food Versus Fuel a “Sound Bite”

Cindy Zimmerman

Analysts with a major agricultural financial institution say alternative fuels are just one of the many factors causing higher food prices.

RabobankKarol Aure-Flynn, executive director of the Rabobank Food & Agribusiness Research and Advisory department, says “food versus fuel” is basically a misleading sound bite. “The fallacy of the headline is that there is a direct competition between the two; that it’s either or. The reality is that strong global economic growth has changed the demand equation for U.S. commodities,” he said in a recent Rabobank podcast. “The depreciation of the U.S. dollar, soaring energy costs and changing trade policies are also contributing to the cost of commodities, which in turn is raising the cost of food — it’s not just fuel, it’s a combination of all of these factors.”

Aure-Flynn also notes that while prices at the farm level have increased this year, they have been outpaced by production costs for farmers.

“Farmers’ profitability doesn’t change retail prices. And farmers’ profitability isn’t guaranteed by high grain prices. The same factors that are lifting grain prices are lifting production costs,” said Aure-Flynn. “So, yes, the farm price index is at 162 percent of what it was 1990-1992, but at the same time the price index measuring what farmers pay — for services, farm wages — is 189 percent of base.”

Rabobank is a global financial services leader providing institutional and retail banking and agricultural finance solutions in key markets around the world.

Agribusiness, Ethanol, Food prices, News