Summary
Bio-fuel is one of the renewable energy resources available to the US and other countries. However, to say that bio-fuel is also responsible for high food prices is not entirely correct.
Analysis
Bio-fuel is one of the renewable energy resources available to the US and other countries. However, to say that bio-fuel is also responsible for high food prices is not entirely correct. Any analysis on bio-fuel should include a reality check on the current demand and dependency on fossil fuels imports into the US as an example. Fossil fuels are not a renewable energy resource. Fossil fuels account for 85% of energy consumed in the US. More than 60% of its electricity generation and almost 100% of its automobile transportation depend on fossil fuels.
According to a September 2009 EIA report, 5 countries – Canada, Saudi Arabia, Mexico, Venezuela and Nigeria - account for 65% of US crude oil importation in July 2009. Despite the current economic slowdown in the US, crude oil import by the US had increased by 55,000 barrels per day for the same month. It is clear that US cannot afford to be dependent on fossil fuels importation, e.g. crude oil, to drive its economy.
Shipping and freight rates play an important part in the determination of food prices in the market. Firstly, shipping and freight rates correspond to the price of crude oil. Secondly, these rates are also dependent on certain periods and shipping routes. The "back-to-school" autumn months in the northern hemisphere will see these rates increased by as much as 150%. In addition, shipment from Australia to SE Asian countries can cost as much as shipment to Europe or the US due to the demarcation of shipping routes determined by the shipping industry.
Unsustainable population growth is another cause of high food prices, where mass poverty, high unemployment and illiteracy have pushed the major part of the population below the poverty line. Hunger and malnutrition will be a way of life for many in these countries. In some of these countries, e.g. in India, the government determines to a large part on how much food may be released into the market in order to maintain and regulate food prices.
Thirdly, corruption and monopoly in the supply chain and distribution channels are some of the causes of high food prices. In many developing countries, politicians, government agencies and government linked corporations exercise full control over the distribution channels of food in the country. Farmers who are usually smallholders do not have direct access to the market. They have to rely on these “middlemen” to bring their produce to the market place, very often at a higher cost to the consumers.
Therefore, these factors do have a strong influence over the price of food in the market place. Looking at the supply and demand side of bio-fuel is insufficient to explain in full the cause of high prices of food. Bio-fuel will not only lead to new developments in biotechnology but will mitigate the world’s economy dependency on fossil fuels.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
