The Biofuel Boom: Implications for World Food Markets. Paper presented at the Food Economy Conference, The Hague

This paper evaluates the impact of the current biofuels boom on world food markets. We begin with an analysis of the origins of the recent bio-fuel boom – from a US perspective. We conclude this section by predicting a slowing of the ethanol boom in the US, as production satiates the high-value demand for ethanol as an additive so that future growth hinges of its ability to substitute for petroleum products on an energy equivalent basis. This transition is reflected in the elimination of the price premium for ethanol, the price of which has dropped sharply in recent months. This, combined with higher corn prices, has served to curtail most plans for new ethanol capacity – at least for the present. Our prospective analysis of the impacts of the biofuels boom on food markets focuses on the 2006-2010 time period, during which existing investments in the US, and new mandates in the EU are expected to substantially increase the share of agricultural products (e.g., corn in the US, oilseeds in the EU and sugar in Brazil) utilized by the biofuels sector. In the US, this share could double from 2006 levels, while the share of oilseeds going to biodiesel in the EU could triple. We expect such expansion to lead to a doubling of US corn and EU oilseed prices, from 2006 levels, thereby sharply reducin