The Culprit Behind Rising Food Prices Isn’t Emerging Markets, It’s Energy

Food price inflation is not the result of an increasing global demand for food, rather it’s the product of rising energy prices and demand for biofuels, according to a World Bank report.

To start, the real rise in China’s demand for food happened between 1990 and 2000. During this period, prices actually didn’t rise all that much.

From The World Bank:

It is often argued that increased demand for food and changes in diets in emerging and developing economies and resulting pressure on scarce resources such as land are key drivers of higher food prices. However, in China the changes in diet and resulting pressure on scarce resources were much more rapid in 1990-2000, when food price increases were subdued, than in 2000-2009. Per capita daily calorie intake rose steadily from 1960 until 2000 but then it reached a ceiling broadly at the level of high income Asian neighbours such as Japan and South Korea.

A lot of the price increases actually have to do with rising energy prices, which in turn creates demand for biofuels, which also increases food prices.

First, sharply higher oil prices increased the production costs of agriculture, notably via higher fertiliser prices (the WB estimates that the energy intensity of agriculture is 4.4 times that of manufacturing, globally). Higher oil prices also stimulated biofuel related demand for cereals, diverting a rapidly growing share of cereals away from food consumption. Second, global grain stocks had shrunk during 1997-2003, when consumption continued to grow while low prices kept global grain production stagnant. Thus, by around 2004, global stocks were relatively low. Third, supply shocks from weather induced crop failures in key producing countries.

Stocks and weather have had an impact, but it’s really all about biofuels.

Growth in global demand for cereals (rice, wheat, and course grains) rose from 1.6% per year in 1992-2001 to 1.9% per year in 2002-08. However, the acceleration was because of bio fuel demand.
Excluding US bio-fuel related corn demand, global cereal demand growth actually slowed to 1.4% per year in 2002-2008, continuing its gradual deceleration

So if you’re looking for someone to blame for the rise in food prices, ignore the mouths to feed and focus on those pushing bio-fuels.

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