World Bank finally releases ‘secret’ report on biofuels and the food crisis
Remember a few weeks ago, when The Guardian leaked word of a “secret” World Bank report that essentially blames U.S. and (to a lesser extent) E.U. biofuel policies for causing the global food crisis?
You know, the food crisis that continues to generate excoriating hunger in the global south?
Well, the World Bank quietly released a modified version of the report this week. Actually, The Guardian posted the original bootleg version, dated April 8, a week after its scoop; I missed it at the time.
Well, now I’ve read both versions, which are substantially the same (the new version has a brief additional section discussing other researchers’ takes on biofuel and food prices). My judgment: This is a bombshell, and a stark embarrassment to the Bush administration and biofuel-loving Democrats in Congress.
First, let’s do some house-keeping about the controversy surrounding the report, which was written by World Bank senior economist Donald Mitchell. Both the bootleg and official versions contain variations on this line:
The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
The new version adds: “An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished.” That’s interesting, given that the original report is dated April 8 and the official didn’t come out until nearly four months later, on July 28.
That delay raises the issue of whether the World Bank sat on the report to avoid embarrassing the Bush administration, as The Guardian charged. The bank later denied repressing the report; rather, it said it was merely under “peer review,” bank officials told The Wall Street Journal. The Guardian later stuck by its story, citing unnamed sources.
Whom to believe? Impossible to say. Undeniably, the report stands as a blistering rebuke to the Bush’s administration’s unchecked biofuel boosterism. Interesting, because World Bank President Robert Zoelick owes his job to Bush and is a longtime Bush-family lieutenant, as I’ve written before.
Okay, back to Mitchell’s paper itself. Essentially, he looks at the the giant jump in food-commodity prices over the past several years and tries to tease out the the various factors that caused the rise.
“The IMF’s index of internationally traded food commodities prices increased 130 percent from January 2002 to June 2008 and 56 percent from January 2007 to June 2008,” Mitchell writes. He reckons that U.S. and E.U. biofuel policy generated between 70 and 75 percent of that rise. (Brazil’s sugarcane ethanol program, he concludes, has affected food prices little. More on that in a later post.)
In other words, without the massive, rich-government effort to create a market for biofuels, food commodity prices would only have risen at most 39 percent over the 2002-2008 period, and at most 16 percent between January 2007 to June 2008. Those would have been large rises — due mainly to high energy prices and a weak dollar — but not nearly as painful for low-income people as the much larger jumps that actually happened.
Now, Mitchell’s estimates directly contradict those of the U.S. government. In a joint statement [PDF] dated June 11, 2008, USDA Secretary Edward T. Schafer and DOE chief Samuel Bodman delivered a much different assessment:
From April 2007 to April 2008, in the absence of any growth in biofuel production in the United States, we estimate that the International Monetary Fund (IMF) global food commodity price index would have risen by 40.6 to 42 percent as opposed to 45 percent.
Of course, Mitchell is looking at U.S. and European biofuel production, while USDA/DOE statement is limited to just U.S. production. But Schafer and Bodman (without any real analysis) generally dismiss the impact of biofuels on food prices:
Commodities prices, both agricultural and nonagricultural, have risen sharply in recent years for a number of reasons unrelated to biofuels development. For agricultural commodities, higher incomes, population growth, and depreciation of the dollar are increasing the demand for food; drought and dry weather have lowered production and reduced stocks; and some countries have imposed export restrictions. All these factors contribute to higher commodity prices. In addition, record prices for gasoline and diesel fuel are increasing the costs of producing, transporting, and processing food products.
By my reading, Mitchell’s paper utterly demolishes that reasoning.
He looks at the globe’s four major staple crops (corn, soy, wheat and rice) and shows how the recent explosion in biofuel production has sent the commodities’ prices soaring — even in the cases of wheat and rice, which aren’t used as biofuel feedstocks.
What I’ll do here is briefly summarize Mitchell’s reasoning for each crop, teasing out what I think is most interesting in each.
For corn, ethanol enthusiasts like to blame much of the recent price hike on increased demand for meat in India and China, since industrial meat production relies heavily on corn for feed. Mitchell debunks that reasoning.
Mitchell shows that the amount of corn worldwide consumed as animal feed grew only 1.5 percent per year between 2004 and 2007. By contrast, corn devoted to ethanol use jumped by 36 percent per year. Ouch.
Meanwhile, as farmers scrambled to plant more corn in response to higher prices, the percentage of corn used as feed worldwide actually declined between 2004 and 2007:
The share of global feed use of total use declined in response to maize price rises from 69 to 64 percent from 2004 to 2007, and from 70 to 67 percent when the feed by-products from biofuel production are included in feed use.
Thus it was largely ethanol-sucking U.S. cars, not meat-eating Indians, that drove up the corn price.
As for soy, biofuel production pushed up the price in two ways: 1) increased European (and to a lesser extent, U.S.) biodiesel production; and 2) much less land devoted to soybeans in 2007, as U.S. farmers scrambled to plant corn.
The U.S. expanded maize area 23 percent in 2007 in response to high maize prices and rapid demand growth for maize for ethanol production. This expansion resulted in a 16 percent decline in soybean area which reduced soybean production and contributed to a 75 percent rise in soybean prices between April 2007 and April 2008.
Where the analysis really diverges from other assessments is its discussion of wheat and rice. These commodities have seen their prices rise dramatically, even though they aren’t used to make biofuels.
Mitchell writes that while U.S. farmers were cutting back on soy plantings in favor of corn, European farmers were cutting back on wheat to plant rapeseed and other oilseed crops for biodiesel.
The eight largest wheat exporting countries expanded area in rapeseed and sunflower by 36 percent between 2001 and 2007, while total wheat area fell by 1.0 percent.
Thus in 2006 and 2007, when a drought reduced the Australian wheat crop, land that might have been planted in wheat in response was already in oilseeds — mainly because of demand for biodiesel.
Mitchell’s most fascinating analysis centers on rice, whose price nearly tripled between January and April 2008. Mitchell claims that extraordinary jump occurred despite little change in rice production or consumption. What happened?
According to Mitchell, rice-exporting giant India got spooked by the surge in the wheat prices in October 2007 and sharply reduced its rice exports to protect its own food security. Shortly after, the price of rice began to surge. Writes Mitchell:
According to the USDA (USDA 2007) and the International Grains Council (2007), there were no other important market developments at that time that could account for the subsequent rice price increases.
So, according to this analysis, the huge recent jumps in wheat and rice price are really knock-on effects from jumps in corn and oilseed prices — themselves directly related to biofuels.
Mitchell is even more convincing when he focuses on the macro level. Excluding biofuels, growth in global demand for staple crops has actually slowed since the 1990s.
Global consumption of wheat and rice grew by only 0.8 and 1.0 percent per annum, respectively, from 2000 to 2007 while maize consumption grew by 2.1 percent (excluding the demand for biofuels in the U.S.) … This was slower than demand growth during 1995-2000 when wheat, rice and maize consumption increased by 1.4, 1.4 and 2.6 percent per annum, respectively.
So why the sudden rise in crop prices? Biofuels. (The paper contains a convincing analysis of why the rise in fuel prices since 2000 has had much less of an effect on food prices than biofuel.)
To me, Mitchell’s analysis has one major blindspot: He never discusses the lack of grain reserves worldwide that could have helped buffer people from the effects of the sudden surge in grain and oilseed demand from biofuels. Over the past 20 years, the U.S. has completely sold off its grain reserves, on the theory that storing grain interferes with “market forces.” And through the IMF and other “Washington Consensus” institutions, it has leaned on developing nations to do the same.
Add a suddenly ravenous biofuel market to low global grain reserves, and you get a massive price increase — one that falls most heavily on the world’s huge low-income population.
For most folks in the United States, higher food prices have mostly been an inconvenience — though they have surely meant real hardship for the 35.5 million U.S. citizens (including 12.6 million children ) who face “food insecurity.”)
The impact has been much harsher in the global south. Here in the U.S., we spend on average a little more than 11 percent of our disposable income on food. But “the poor in developing countries … spend roughly half of their household incomes on food,” Mitchell writes.
What’s more, low-income folks in the developing world are much more exposed to spikes in commodity prices. In Mexico, for example, 100 percent corn tortillas are a dietary staple. When the price of corn jumps, tortilla prices jump: hence last year’s tortilla riots. A similar situation holds true in Haiti, where rice is a staple of the poor. When people can no longer afford rice, they starve.
Last year, U.N. official Jean Ziegler declared that diverting crops into fuel is a “crime against humanity.” His remark was enormously controversial; it caused the U.N. to backtrack and apologize. Yet it rings true.