Food
versus Fuel: The Debate Continues
by Tonya Kemp, Gordley
Associates
As the media and others continue to focus on the role that biofuels play in rising prices, they often fail to mention the other contributing factors. Ethanol and Biodiesel do have some roles to play by providing the farmers incentive to plant a "cash crop" like corn versus a traditional crop that doesn't pay as well. However, while, there is some displacement of crops that were used for food or feed that are now being used on oil, those crops grown for energy still contribute to the food chain. The part of the plant that is not used for oil (DDG's for corn and soybean meal for soybeans) is still available for animal feed and further food processing. The larger problem is being caused by the rising oil prices, the increasing demand by developing countries, and the placement of export controls by food exporting countries.
When we hear of rising oil prices, those in the city and suburbs often associate it with the price of gas and the increases in costs for utilities and commuting to work. However, the price of oil also impacts the fuel needed in the farmers' tractors as well as price of fertilizer (inputs). Throw in droughts, floods or other weather calamities and the cost of food rises regardless of which crops are grown. For instance, the Australian drought coupled with untimely frosts that hit the North and South American winter wheat crops in 2007 were the major reasons wheat prices sky-rocketed.
Yet even with the high prices in agriculture, many of the farmers are still barely breaking even due to the high costs of inputs as well as the contracts with buyers that had committed them to certain prices long before the prices began to rise. There is a true fear within the agricultural community that prices will drop on food before new contracts are signed and before the prices of inputs drop - thus causing a huge loss to the farmers' incomes.
The second contributing factor in all of this is the increasing demand by developing countries. As China and India grow their economies, their citizens are demanding better transportation and more diverse diets. As they purchase more cars and begin driving, they put a bigger burden on the oil market. As they eat more poultry and beef, they demand more animal feed in the form of soybeans and corn. In addition, many of the market places in the developing world are ill equipped to handle increased production. The farmers lack safety nets that protect them during times of poor weather conditions and there is often a lack of infrastructure available that provides them a way to get the food from the farm to the market place. All of these things contribute to more demand and less availability resulting in higher prices.
Lastly, the response by country governments did not help. When food shortages were announced, several countries stopped exporting certain food items in order to save their own stocks. This resulted in long lines at grocery stores and less product on store shelves. These decisions then created internal surpluses that harmed their own farmers in the process. The farmers could not sell their product. Without an export market creating demand and a surplus within their own country, farmers were left without buyers and large losses.
The price of food is a complicated issue. It is not something that can be blamed on one group or one sector of the economy. High prices are not expected to change anytime soon. The world needs to continue looking for alternative fuels that can be used to supply the increasing fuel demands, while also looking at increasing food production and providing better infrastructure for growing economies.
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