Thursday, April 7, 2011

A Little Relief on Food Prices

The UN Food and Agriculture Organization reports:
The FAO Food Price Index (FFPI) averaged 230 points in March 2011, down 2.9 percent from its peak in February, but still 37 percent above March last year. International prices of oils and sugar contracted the most, followed by cereals. By contrast, dairy and meat prices were up.
Here are the individual components:

Also, interestingly, the very front of the NYT website this morning had a story blaming high food prices on biofuels!  I've been saying this for four or five years, but it's nice to see it starting to penetrate elite consciousness in the US.   Of course they led off with a bit about cassava in Thailand, apparently unable to bring themselves to focus on the biggest contributor: corn in the midwest, but still, I'll forgive them that for explicitly making the connection that food prices are contributing to misery and political instability.
Soaring food prices have caused riots or contributed to political turmoil in a host of poor countries in recent months, including Algeria, Egypt and Bangladesh, where palm oil, a common biofuel ingredient, provides crucial nutrition to a desperately poor populace. During the second half of 2010, the price of corn rose steeply — 73 percent in the United States — an increase that the United Nations World Food Program attributed in part to the greater use of American corn for bioethanol.

“The fact that cassava is being used for biofuel in China, rapeseed is being used in Europe, and sugar cane elsewhere is definitely creating a shift in demand curves,” said Timothy D. Searchinger, a research scholar at Princeton University who studies the topic. “Biofuels are contributing to higher prices and tighter markets.”

In the United States, Congress has mandated that biofuel use must reach 36 billion gallons annually by 2022. The European Union stipulates that 10 percent of transportation fuel must come from renewable sources like biofuel or wind power by 2020. Countries like China, India, Indonesia and Thailand have adopted biofuel targets as well.
Here's the infographic with the piece:

Great stuff.  The 6% number is reasonable (if I were to correct my rough estimates for DDG and sugar), I'd be about there too).


Greg said...

An extrapolation exercise:-

From the "grain supply and demand" page on the FAO's website, grain utilization in 2000 was 1900 million tonnes (Mt) and in 2010 was 2277 Mt. This is an annual growth rate of 1.8%.

1.8% p.a. strikes me as being about the upper limit for growth in grain supply -- in the world as it is. (With better access to credit, better infrastructure, and more market power, Asian and African farmers could do a lot better than this. But pigs wll fly first, I think.) In the 2000-2010, supply has just about kept up -- not quite. But I'll use 1.8% p.a. for growth in production.

From the NYT graphic and the FAO data, biofuels consumed 19 Mt (1% of 1900) in 2000 and 130 Mt (5.7% of 2277 Mt) in 2010. This is a growth rate of over 21.2% per year.

Setting biofuel use, b(t) = 19 × 1.212^t equal to production, p(t) = 1900 × 1.018^t and solving for t, I get t ≈ 26.4.

If nothing changes, biofuels will use the total grain supply in 2026.

Greg said...

Further points about the above scenario:

- The total amount of grain available for food consumption stops growing at t ≈ 12.9, i.e. Oct/Nov 2012. After that, there's less each year.

- The scenario is an oversimplification because about a third of the calories in grain remain after fermentation, and this residue is used as animal feed. It may become available for people, too.

- It also ignores oil crops. Palm oil has become an increasingly important source of calories among the poor in South Asia (over 600 million people) in recent years, as it has been cheap. The use of palm oil for biodiesel is also growing rapidly.

- The market supplies "effective demand", i.e. those who have the money to pay. These are vehicle owners and operators, pretty much by definition.

With all that, I think we would be getting close to one of those famous "tipping points", if we lived in a world like this scenario.