Economist says biofuels have pushed up global food prices by 75%

The Guardian uncovers a ’secret’ World Bank biofuel report

6 July 2008 by Tom Philpott


In a startling article published July 4 [1], the Guardian reports that in a “secret” study, a World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

senior economist concluded that the recent explosion in biofuels use has driven global food prices up by 75 percent — a number much higher than estimates from other major sources. The USDA — which has vigorously defended President Bush’s seemingly bottomless support for crop-based fuels — claims biofuels account for only 3 percent of recent food price hikes.

The World Bank study’s author, Don Mitchell, finished his assessment in April, the Guardian reports. But it never saw light of day until the British newspaper got hold of a leaked copy.

Why was it suppressed? “Senior development sources believe the report, completed in April, has not been published to avoid embarrassing President George Bush,” the Guardian reports.

I hope the Guardian piece inspires World Bank to release that report. It’s been extremely difficult to find reliable analysis on how U.S. and European biofuel mandates and subsidies have been affecting food prices.

Biofuel booster/investors like Vinod Khosla like to point to studies from private research houses like Informa [2] and LECG [3] , both of which concur with the USDA’s assessment that the biofuel boom has virtually nothing to do with higher food prices.

But click on the above Informa link, and you find its report was “prepared for the Renewable Fuels Foundation.” Meanwhile, the author of the LECG paper lists among his clients “the Renewable Fuels Association, National Corn Growers Association, American Soybean Association, and United Soybean Board, the National Biodiesel Board, [and] the Canadian Renewable Fuels Association.”

Other studies, too, deliver conclusions that intersect with the interests of their funders. Keith Collins, for example, recently sashayed through the USDA/food industry revolving door, changing his gig from chief USDA economist to researcher for Kraft Foods. Transnational food processors like Kraft compete with ethanol makers for corn, and they would prefer to see ethanol mandates be discarded.

Coincidentally or not, Collins’s recent Kraft-funded study [4] found that the ethanol boom has pushed up food prices by 25-35 percent.

These conflicting conclusions — and the conflicting interests that fund them — make the repressed World Bank report all the more important. The World Bank is hardly a neutral institution; Bush himself appointed the bank’s current director, Robert Zoelick, last year. Zoelick has been bouncing between high-level posts in Republican administrations and the private sector since the 1980s. To claim the World Bank position, he left a plumb job at Goldman Sachs — which he gained after five years of high-level posts in the Bush administration.

Zoelick’s loyalty could explain why the World Bank has been hiding the biofuel study from the public since April. One unnamed “senior development source” told the Guardian that, if released, the report would “put the World Bank in a political hot-spot with the White House.”

But even though the bank’s leadership is politically beholden to Washington, its staff has always been capable of producing work cogently critical of Washington’s agenda. Unlike Keith Collins or the rent-a-researchers cited by Vinod Khosla, World Bank staffers don’t answer directly to people with a specific agenda on the biofuel question.

Indeed, given that 100 million additional people have been pushed under the poverty line worldwide by the recent spike in food prices, the World Bank has an interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. in figuring out exactly what’s behind the spike.

Until the report goes public, it’s impossible to figure out exactly what’s in it; all we’ve got is the Guardian account. So why is its estimate for the effect of biofuels on food prices so much higher than others? Here’s what the Guardian says:

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 third factor — speculation — is often treated as an independent cause for the price spikes. But when you think about it, why did speculators suddenly start bidding up the price of grains and soybeans two years ago? Answer: because they knew the U.S. and European governments were insuring a steady, and rising, market for those goods in the years ahead. So the big speculation wave stems from the welter of mandates and subsidies propping up the biofuels market.

Meanwhile, Robert Zoelick has plenty of explaining to do about why it took a leak to bring this important study to light.



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