Biofuels and climate change pushing up food prices again

It's been about five years now since biofuel production started to get serious, and right at the outset there were concerns about it taking away land from food production. Well, there's a story in the news in the past couple of days on this topic:

"The time of cheap food prices is over," says Nestle chairman Peter Brabeck-Letmathe.

He is highly critical of the rise in the production of bio-diesel, saying this puts pressure on food supplies by using land and water that would otherwise be used to grow crops for human or animal consumption.

"If no food was used for fuel, the prices would come down again - that is very clear," he says.

"We are now in a new world with a completely different level of food prices because of the direct link with fuel," he says.

BBC News

Of course the important thing is that now the link between food and fuel is there, it's not going to go away very easily. So if you were thinking "well I'm not making it worse as I just burn normal diesel/petrol" then think again - every litre of fuel burned represents demand, and as there's no scope to increase oil supplies now, new demand is going to be met through biofuels. We're all responsible, and we all need to use less liquid fuel for travelling. Besides, ALL petrol and diesel in the UK includes a small percentage of biofuels now anyway...

But it's not just demand for liquid fuels that's the problem. The historic (and continuing) burning of fossil fuels is having an indirect effect on food prices through climate change. Now I know you can't link a specific weather event to climate change, but the 'stuck' jet stream which we've heard so much about recently is possibly partly due to reduced ice cover in the Arctic. While this has been soaking us in the UK, in the US it's brought drought conditions:

US Agriculture Secretary Tom Vilsack has warned the worst drought in decades will result in higher crop prices.

Mr Vilsack met President Barack Obama on Wednesday to discuss the US response to drought concerns, with little rain forecast to ease the crisis.

By the end of June, 55% of the continental US was in a moderate to extreme drought, officials reported.

Crops including corn and soybeans have been hit by the dry conditions, and several states have seen wildfires.

Mr Vilsack announced in a press conference on Wednesday that the US Department of Agriculture had added 39 counties in eight states as "natural disaster areas", making farmers in those counties eligible for low-cost emergency loans.

...

On Monday, a weekly US report said that just 31% of the corn crop and 34% of the soybean crop were in good to excellent shape.

BBC News

Maybe it's time to cycle or walk a bit more?

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News roundup - prices of food, gas and electricity, and OPEC output

A few interesting news stories in recent days.

The Telegraph reported that food prices are rising at the fastest pace in 23 months in the UK. What's this got to do with oil? Well, here's some quotes from the article:

Disappointing crops and demand from the biofuel industry have helped corn prices rise 112pc in an year and wheat 72pc.

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Rising energy prices have also pushed up the costs experienced throughout the supply chain, said the BRC.   full article

So there you go, flat or falling supplies of conventional cheap crude oil are boosting food prices through increased demand for biofuels and also through the energy used in growing, processing, transporting, storing and selling food. Expect more of this to come - it is not a 'blip'.

Moving onto gas and electricity, several weeks ago I was warning on this blog of rising prices, and since then the price of wholesale gas in the UK has been hovering around 2p/kWh, which is getting on for double what it was a year ago. So, it was only a matter of time before this fed through into domestic bills. Scottish and Southern has been the first to move:

Scottish Power is to raise the cost of gas by 19% and the cost of electricity by 10%. The utility firm said the increase, which would affect 2.4 million households in the UK, would come into effect from 1 August.

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Scottish Power's latest rise will mean that customers who take gas and electricity from the company but pay quarterly by cash will see their annual bills rise by an average of £180 to £1,391.   full article

So if you needed another incentive to improve your home's energy efficiency and reduce your reliance on fossil fuels, now you have it.

So what next? Well, OPEC have today announced that they are not going to boost levels of crude oil production, so the price of oil has ticked up another dollar or so. Of course, it may all be academic - nobody really knows if Saudi Arabia actually has any spare capacity, and if it does, how long it could be maintained...

And finally, all of this feeds into inflation, which makes it ever harder for the Bank of England to resist raising interest rates. But if they don't and inflation stays high, then they are effectively taxing everyone's savings and delivering real-terms pay cuts to anyone whose pay isn't going up by 5 or 6% a year...

Mike

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