World Bank Report Takes New Look at Food and Fuel

Cindy Zimmerman

Ethanol production probably had less impact on global commodity prices in 2008 than many were saying at the time.

A newly released working paper, entitled “Placing the 2006/08 Commodity Price Boom into Perspective,” from the Development Prospects Group at the World Bank, concludes that “…the effect of biofuels on food prices has not been as large as originally thought.”

Authors of the report, John Baffes and Tassos Haniotis, argue that energy prices, as well as speculation, played significant roles in the non-energy commodity price spikes seen in the recent past. “We conclude that a stronger link between energy and non‐energy commodity prices is likely to have been the dominant influence on developments in commodity, and especially food, markets,” says the report. “Demand by developing countries is unlikely to have put additional pressure on the prices of food commodities, although it may have created such pressure indirectly through energy prices.”

Another point they make is that biofuels only represent 1.5 percent of worldwide grain and oilseed use. “This raises serious doubts about claims that biofuels account for a big shift in global demand. Even though widespread perceptions about such a shift played a big role during the recent commodity price boom, it is striking that maize prices hardly moved during the first period of increase in US ethanol production, and oilseed prices dropped when the EU increased impressively its use of biodiesel. On the other hand, prices spiked while ethanol use was slowing down in the US and biodiesel use was stabilizing in the EU.”

In a 2008 Policy Research Working Paper, authored by Donald Mitchell, lead economist for the World Bank’s Development Prospects Group, which claimed 70-75 percent of the increase in food prices that year was due to biofuels and the related consequences of low grain stocks, large land use shifts, speculative activity and export bans.

So, this new paper is a big about-face from the 2008 view and actually says what most biofuels advocates were saying all along, according to Renewable Fuels Association president Bob Dinneen. “In reversing course, this World Bank report reaffirms the marginal role biofuels play in world commodity and food prices,” said Dinneen. “The RFA has long noted that ethanol production has continued to increase while corn prices have now returned to normal levels. Volatile oil prices, speculation, and adverse weather conditions all played far more significant roles in driving commodity prices to record and near record prices.”

Growth Energy CEO Tom Buis praised the World Bank for setting the record straight. “This study clearly shows that the notion of food-versus-fuel was simply wrong,” said Buis. “Food-versus-fuel has always been and will always be nothing more than a myth. We hope that this report will encourage others who have relentlessly perpetuated this untruth to admit their mistakes and put an end to this false debate.”

It is interesting to note that these “working papers,” although released by the World Bank, done by World Bank economists and posted on the World Bank website, come with a disclaimer that says they represent “work in progress” and that the findings “are entirely those of the authors” and do not necessarily represent the views of the World Bank.

Link to July 2008 working paper.
Link to July 2010 Working Paper.

biofuels, Ethanol, Ethanol News, food and fuel, Food prices, International, RFA