March 8, 2010

EU biofuel policies to boost grain prices

The EU is promoting plant-based biofuels, which will increase European farm incomes and agricultural commodity prices but at the same time boost food prices.

Current biofuel policies will boost EU farm incomes by 3.5% in 2020, according to impact studies. A report says the new and strong-growing non-food demand for agricultural output will boost farm prices and farmers income, but the world's poorest consumers will pay the price by facing higher food prices or food shortages.

High food prices in 2008 led to food riots in some developing countries and were partly blamed on biofuels such as ethanol consuming part of the US corn crop.

The simulated effects of EU biofuels policies imply a considerable shock to agricultural commodity markets, said the report.

EU demand for cereals such as wheat - used to make ethanol - will rise by about 7% in the next decade as a direct result of its biofuel policies, raising cereal prices by 10%, one modelling study shows. World prices for corn are also predicted to rise 20% due to EU biofuel demand.

Environmentalists warn that to meet the added demand for biofuels, farmers around the world will expand into new areas, sometimes by clearing tropical rainforests and draining peatlands.