Thursday, July 24, 2008

Agricultural economists: Global growth, dollar fall, biofuels and oil price main drivers of food prices

The major factors driving up food prices are "global changes in production and consumption of key commodities, the depreciation of the dollar, and growth in the production of biofuels," and higher oil prices also play a role, lthree agricultural economists at Purdue University said this week in a report commissioned by Farm Foundation. They will dicuss the report in a free Webinar on Wednesday, July 30.

Philip C. Abbott, Christopher Hurt and Wallace E. Tyner said it is impossible to calculate the relative weight of those factors, but after reviewing 25 studies and reports on the subject, "a clearer picture emerges of what has been happening." They say fast growth in the developing world has led to more demand for meat, and that India and China have received too much of the blame for the phenomenon, though China's growth has driven up oil prices, creating "an indirect effect on food prices."

The most direct impact of the oil market on food prices "has been through its effect on the demand for biofuels," the report says. "In the last four years, most of the growing global demand for corn has come from its increased use for ethanol production. The ethanol blender credit, tariff and Renewable Fuel Standard are factors causing increased corn price, but quantitatively most of the increase has been driven by higher oil prices." While oil prices have raised the cost of fertilizer and diesel fuel, the cost of such inputs are lagging indicators and "the long-term impact of these increases has yet to be felt," the authors conclude.

Other factors: Growth in agricultural productivity has slowed, perhaps because of less investment in research. In the last two years, food markets were hit by weather and crop diseases, and the dollar, the main currency used in world food and oil transactions, fell. The exchange-rate factor is "more important than many other studies imply," the authors say. Speculation by investors has been blamed for driving up both oil and food prices, but the reports says there is not enough evidence to support the assertion about food.

Foundation President Niel Conklin says in the preface to the report, today’s food price levels are the result of complex interactions among multiple factors — including crude oil prices, exchange rates, growing demand for food and slowing growth in agricultural productivity — as well as the agricultural, energy and trade policy choices made by nations of the world," "But one simple fact stands out: economic growth and rising human aspirations are putting ever greater pressure on the global resource base."

For the report's executive summary, click here. For the full report, click here. To register for the free Webinar, which will begin at 1 p.m. EDT on Wednesday, July 30, go here. For more information, including audio files with discussions of the report, ranging from two hours to a few minutes, go to

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