Biofuels linked to food price increases in report: Iowans react

By: Alayna Wilken - The Daily Iowan

Posted: 7/15/08

Ethanol may have contributed to a massive rise in world food prices.

At least that's what a leaked World Bank paper says. But locally, Iowa agricultural and political experts have had various and conflicting reactions to the assertation.

The World Bank paper, reported by the British newspaper The Guardian earlier this month, contended that the production of biofuels, such as ethanol, contributed to the six-year, 140-percent increase in global food prices. It examined many sources of price increases but said that the biofuels production was responsible for 75 percent of the total food-price increase.

The 75 percent approximation differs from the White House's estimate - that ethanol only accounts for 2 to 3 percent of the increase in worldwide food prices.

"The government numbers should be taken with a grain of salt," said David Swenson, an associate scientist in economics at Iowa State University who disagrees with both the World Bank's and White House's numbers.

The working report was written by Donald Mitchell, a World Bank economist, and dated April 8; it was leaked on July 4. Mitchell studied other contributing factors in the report, including energy and fertilizer prices and the decline of the dollar.

The Mitchell report should be well-respected, Swenson said, but he noted that it fails to look at more recent increases in other factors.

"The wild card is energy prices," he said, referring to the more recent surges in energy prices.

Chad Hart, an agricultural economist with the Center for Agricultural and Rural Development at ISU, believes the 75 percent figure is unreliable.

"I'm not sure how much stock to put on the number itself," he said.

Members of Iowa's ethanol industry voiced similar doubts.

"It's ridiculous, absolutely ridiculous," said Monte Shaw, the executive director of the Iowa Renewable Fuels Association.

Shaw said worldwide ethanol production uses less than 3 percent of the world's corn crop.

The higher price of food is much less than the increase in gas prices if ethanol production was stopped, he said.

Another charge made by the Mitchell report is the effect of the government mandates on ethanol and biodiesel in the United States and Europe. These policies have increased the production of biofuels, and therefore, the demand for corn stays high.

Without the mandates, the demand would go down, and, according to the Mitchell paper, so would the prices. Another alternative cause for the high price of corn is the lack of carry-over stock from previous years, Hart said.

Last year saw records for corn production in the United States. Along with the record supply, there was a record export demand at the same time.

Either way, the production of biofuels is not relenting.

Iowa Gov. Chet Culver said in a statement that he plans on continuing the production of ethanol and biodiesel.

He hopes to continue researching and funding biofuels in Iowa, he said, because it is the increase in transporting goods that have created the supermarkets' prices to spike, according to a release.

"Basic goods - including food - are getting more expensive. That's why we must continue our investment in renewable fuels, which will lower the costs of doing business and moving products," he said in a statement.

Representatives from the World Bank did not return calls for comment Monday, and nothing was posted on its website referencing the leak.

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