Energy firms set to push up price of food

THE inter-relationship between food prices and the production of biofuels is only beginning to emerge.

But here are one or two statistics that make the point.

Palm oil is now extensively used in the making of biodiesel.

In the past year the cost of the oil has gone up by 90% as the West uses it increasingly as a key source of biodiesel.

In China and India it is used extensively in local food production and the implications for food price inflation are obvious.

In the US, 80 million tons of maize were used in the production of biofuels this year, an increase of 50% on 2006.

Biofuels are one part of the energy alternatives being pursued in the rush to replace declining oil and gas reserves.

Alternative energies such as wind and solar are part of a growing effort to supplant fossil fuels as the core source of our energy requirements.

This process is in its infancy and anyone who fails to see the implications for food prices is not living in the real world.

What we are witnessing is a global phenomenon. The West has had its huge surge in wealth creation over the past few hundred years and the rest of the world wants some of what we have.

India and China are the two classic cases in point. Not only is China building one new fossil fuel power station every week, but it is adding a city the size of Detroit, every few months.

The car population is set to explode from around 30 million to 130 million cars in about 10 years.

India is also on the move and the quest for growth will put pressure on food and energy reserves as this process continues to unfold.

It is also the case that the global village first highlighted as an emerging global phenomenon 40 years ago by Canadian media guru Marshall McLuhan who said mass communications would make the world a big village.

What is becoming just as true is the rise of our inter-dependence across the globe where the demands of one community increasingly has a global impact.

In truth that has been the case all along but those of us in the West who lived off the sweat shops of the poorer regions of the globe never worried, because until now access to cheap coffee, tea and clothes made our lives richer.

But that phenomenon is about to change and the West is set to go though a profound period of change.

Just how profound is hard to tell, but the emerging pressure on all commodity prices is a direct witness to the fact that the competing demands on sugar, corn, palm oil and other commodities that can produce fuel as well as food, is starting to hit home.

The bottom line is that as biofuels compete, more and more with food for the world’s crops then the real fear is food price inflation.

It seems logical enough.

Supply and demand has always dictated price. If biofuels are competing for maize at this stage then the cost implication for food manufacturers and for consumers are quite significant unless we can produce enough of all of those crops to meet all of our demands.

With the rapid decline in farming that scenario does not look terribly hopeful in the short term.

Ironically, the farming community or what’s left, stand to do very well out of this emerging phenomenon.

It is the case that 25% of all maize grown in the US right now is going into biofuel production.

Estimates suggest that biofuel output will double by 2016 with obvious implications for food and commodity prices.

New research by NCB Stockbrokers suggests that with alternative energy becoming top priority for many nations, we could be on the verge of seeing a direct link between food price inflation and the rise in sustainable energy.