Secret report: biofuel caused food crisis (updated)

This is the headline on an article in the Guardian newspaper in the UK. The article by Aditya Chakrabortty, economics leader writer for the Guardian, is based on a currently unavailable World Bank report obtained by the Guardian. Chakrabortty writes

Biofuels have forced global food prices up by 75% - far more than previously estimated - according to a confidential World Bank report obtained by the Guardian.

The damning unpublished assessment is based on the most detailed analysis of the crisis so far, carried out by an internationally-respected economist at global financial body.

The figure emphatically contradicts the US government's claims that plant-derived fuels contribute less than 3% to food-price rises. It will add to pressure on governments in Washington and across Europe, which have turned to plant-derived fuels to reduce emissions of greenhouse gases and reduce their dependence on imported oil.

The article also notes that

It will also put pressure on the British government, which is due to release its own report on the impact of biofuels, the Gallagher Report. The Guardian has previously reported that the British study will state that plant fuels have played a "significant" part in pushing up food prices to record levels. Although it was expected last week, the report has still not been released.

"Political leaders seem intent on suppressing and ignoring the strong evidence that biofuels are a major factor in recent food price rises," said Robert Bailey, policy adviser at Oxfam. "It is imperative that we have the full picture. While politicians concentrate on keeping industry lobbies happy, people in poor countries cannot afford enough to eat."

Chakrabortty continues by explaining,

President Bush has linked higher food prices to higher demand from India and China, but the leaked World Bank study disputes that: "Rapid income growth in developing countries has not led to large increases in global grain consumption and was not a major factor responsible for the large price increases."

Even successive droughts in Australia, calculates the report, have had a marginal impact. Instead, it argues that the EU and US drive for biofuels has had by far the biggest impact on food supply and prices.

The article goes on so say

"Without the increase in biofuels, global wheat and maize stocks would not have declined appreciably and price increases due to other factors would have been moderate," says the report. The basket of food prices examined in the study rose by 140% between 2002 and this February. The report estimates that higher energy and fertiliser prices accounted for an increase of only 15%, while biofuels have been responsible for a 75% jump over that period.

It argues that production of biofuels has distorted food markets in three main ways. First, it has diverted grain away from food for fuel, with over a third of US corn now used to produce ethanol and about half of vegetable oils in the EU going towards the production of biodiesel. Second, farmers have been encouraged to set land aside for biofuel production. Third, it has sparked financial speculation in grains, driving prices up higher.

The article closes with a quote from a former chief scientific adviser to the UK governemnt,

"It is clear that some biofuels have huge impacts on food prices," said Dr David King, the government's former chief scientific adviser, last night. "All we are doing by supporting these is subsidising higher food prices, while doing nothing to tackle climate change.

Tyler Cowen says that

Seventy-five percent seems like a high estimate to me

while Phil Miller thinks

... that this line of research will be one of the more interesting lines over the next few years as we come to learn what a boondoggle [for those not up on Americanisms this means "a project funded by the federal government out of political favoritism that is of no real value to the community or the nation"] biofuel subsidies are. If biofuels are such a great use of resources, why must government subsidize the heck out of them?

Economists have attacked biofuel subsidies and mandates from the start, for a variety of reasons, but I'm not sure that anyone would have expected such a huge price effect. It will be interesting to see if the estimate stands. And you can be sure it will controversial, to say the least.

Update: Kiwiblog makes the point

Of course this doesn’t stop Labour and the Greens with pushing ahead for mandatory biofuel uptake in NZ. Hey what’s an extra hundred million people in poverty so long as we are environmentally pure.

He should have added that its not even clear that biofuels will result in us being "environmentally pure".