MECAS(09)07 - Sugarcane ethanol and food security

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Sharp declines in world prices for food commodities and energy during the latter part of 2008 marked the end of a five-year commodity boom, made exceptional by its duration, the number of commodities involved, and the heights that prices reached. In terms of food security, the sharp rise in food prices during 2007 and 2008 caused severe hardship and suffering in low-income, net food importing countries. In short, the 5 year commodities boom had boosted retail prices for food in many countries to the point that concerns arose that the world risked transitioning into a phase of commodity scarcity – as well as to further inflame an increasingly emotive food vs fuel debate over the use of food crops for liquid bioenergy.

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In this study the question of the extent, if any, to which sugarcane ethanol contributed to food price escalation is conducted using a ‘top-down’ approach. First, the recent commodity cycle is reviewed and assessed – its duration and severity, and how it led to perceptions of an escalating food security crisis via food inflation. The drivers behind the price escalation are then identified. A broad understanding of the commodity price cycle then allows the key question of biofuels and their impact on the observed food price escalation to be assessed.
Whilst the relative role of biofuels to food price escalation is difficult to disentangle from the other drivers, attention is focussed on the disparate impacts of biofuels production using grains as opposed to sugarcane. Evidence is compiled of a strong link between increasing diversion of corn to ethanol production and higher average world corn prices than would otherwise be the case. However, in the case of cane ethanol evidence is collated that suggests the links between increasing use of cane – chiefly in Brazil – is not impacting on
sugar prices or food prices generally. This is chiefly because biofuels production from sugar cane in Brazil is lower-cost than biofuels production in the US or EU and has not raised sugar prices significantly because sugar cane production has grown fast enough to meet both the demand for sugar and ethanol.


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