IMF Concerned by Impact of Biofuels on Food Prices

The International Monetary Fund (IMF) warned Oct. 17 that an increasing global reliance on grain as a source of fuel could drive up food prices in poor countries. "The use of food as a source of fuel may have serious implications for the demand for food if the expansion of biofuels continues," the IMF said in its twice-yearly report on the world economy. It called for greater international coordination to ensure that policies promoting biofuels take account of their impact on consumer prices.

It argued that such an effect on food prices could be eased if the U.S. and the EU reduced barriers to biofuel imports from developing countries such as Brazil, "where production is cheaper, more efficient and environmentally less damaging."

The report questioned whether it was advantageous for rich countries to turn to biofuel production in the face of rising oil prices. "In 2005 the U.S. overtook Brazil to become the world's largest producer of ethanol while the EU is the largest biodiesel producer," the IMF said. But it noted that "only Brazilian ethanol derived from sugarcane is less costly to produce than gasoline and corn-based ethanol."

While a growing use of grain as feedstock for biofuels could boost food prices beyond current levels, the trend could also "exert additional stress on already highly exploited land and water resources worldwide," the IMF said. It cited a 2006 study by the research group LMC International that found that increasing biofuel production to a point where it provided 5% of global fuel needs by 2015 would require expanding the acreage of all cultivated land worldwide by 15%.

But the IMF also recognized that developing "green" fuels could provide poor, largely agrarian countries with new sources of income and employment, while reducing polluting emissions from aging vehicles.

In rich countries, the future of the biofuel sector depends largely on the provision of tax breaks to agricultural producers. Without such advantages, according to the IMF, production costs would be prohibitive. In that case, it added, ethanol production would be mainly concentrated in Brazil and other Latin American countries while Asia, where production costs are lower, would be the principal source of biodiesel.