Fossil fuels account for 67 percent of grain prices, causing price pressures, says US think tank head

In Washington, John Podesta, CEO of the Center of American Progress, said that fossil fuels account for two-thirds of the cost of producing and transporting grains, and blamed the 129 percent increase in fuel costs for the increase in food prices.

Lester Brown, director of the two-thirds of the Earth Policy Institute, recently wrote that ethanol grain usage has increased 27 million tons between 2006 and 2007. However, the chief scientist at BP said that crop prices have been rising because the emerging world is consuming more food, noting food grains demand increased by 28 million tons, and that ethanol uses only 4 percent of world grain production.

Crop failures in the Ukraine and Australia, as well as yield problems in China, have exacerbated the situation. Professor Garth Taylor, of the University of Idaho,  identified Brazilian, Argentine and Australian droughts as well as increased Third World demand for the run-up in prices. He also said that the weak dollar, US drought risk, low interest rates and the unsigned Farm Bill have impacted prices.

In Mexico, as many as 100,000 farmers took to the streets in Mexico City to protest the end of corn tariffs, saying that the United States would put Mexican corn out of business. On January 1, tariffs on sugar, milk, beans and corn were eliminated under the NAFTA agreement. The US sugar industry and Mexican corn industry are considered to face the greatest risk from this round of tariff eliminations. Last year, food riots erupted in Mexico over the rising price of white corn, which is produced primarily by Mexican producers for the domestic market. Last year’s protests in Mexico sparked the “food vs. fuel” debate over ethanol.

Corn futures at the Chicago Board of Trade have increased to $5 per bushel, prompting expectations of another big spring planting of corn. Last year, farmers planted record acreages of corn and produced a record 13.074 billion bushel corn crop. Despite the record production, reserve corn stocks only increased from 1.3 billion to 1.4 billion bushels, owning to strong ethanol producer demand as well as 2.45 billion bushels in export sales.

Providing more background to the reserve stock shortages, the International Food Policy Research Institute recently released a report saying that the world is eating more food than it produces, and that biofuel production runs the risk of creating social unrest. The report projected a 66 percent increase in the price of corn and a 50 percent increase in oilseed prices by 2020, attributed to biofuel production. The report also said that global cereal stocks have fallen to their lowest levels in more than 15 years.

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