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Category: Food

Published June 12, 2012

Biofuels and Food Prices

In a new survey article in the American Journal of Agricultural Economics, David Zilberman and his coauthors look at the relationship between biofuels and food prices:

[W] e conclude that introduction of biofuel may affect food prices but the impact varies across crops and locations. Furthermore, we found that the introduction of biofuel has a lower impact on food-commodity prices when biofuel production is not competing with food crops for resources, such as land and water. Thus, the expansion of sugarcane ethanol in Brazil and second-generation biofuels grown on nonagricultural lands are likely to have a much smaller impact on food prices than the expansion of corn ethanol. We further argue that the introduction of corn ethanol has had a significant impact on food commodity prices, but it is less substantial than the impact of economic growth and approximately of the same order of magnitude, though in the opposite direction, as the impact of the introduction of GM organisms.

Now, this is based in simulation analysis and economic theory, so it is not possible to make causal claims here.

But this is an interesting set of results in that it suggests that the impact of the growing demand for food due to increased incomes is more important than the impact of biofuels when it comes to food prices.

This is especially interesting when contrasted with the findings in the article I discussed yesterday, which concluded that China’s economic growth since 1995 has only had a weak effect on food prices.

Published June 11, 2012

Chinese Economic Growth and Food Prices

In food policy debates, people often claim that Chinese economic growth — and thus an increased demand for food in China — is partly to blame for rising food prices.

Up until today, however, I had never seen any empirical evidence to that effect. Here is the abstract of a new article by Nelson Villoria in Agricultural Economics:

This article explores the impacts of China’s growth in the international markets of agricultural products along two dimensions: food price inflation and export growth in other developing countries. China’s food imports of vegetable oils have grown dramatically over the last decade, linking China’s economic growth to the recent increases in global food prices. If China is a source of global food price inflation, exporting countries will benefit whether they sell directly to China or not. These direct and indirect linkages are explored using a short-run, partial-equilibrium model of international trade in agricultural products in which consumer prices and trade costs are derived from bilateral trade flows. China’s effects on food prices and exports are estimated by reducing Chinese food expenditures in 2007 by half, roughly China’s level of expenditures in 1995. Results indicate that food prices as measured by CES price indexes in developing Asia, Africa, and Latin America would have been reduced by 1.27%, 0.32%, and 0.22%, respectively. China has been an important source of growth for exporters selling directly to China. There is no evidence of export growth due to an overall increase in food prices caused by China’s growth.

I am not sure setting China’s food expenditures equal to what they were in 1995 is the right counterfactual, but it is really difficult to establish the right counterfactual in this context. This is especially true given that the “right” counterfactual would be an alternate world in which China would not have experienced all that additional economic growth since 1995.

If you believe the counterfactual, however, it looks as though the effects of Chinese growth on food prices are weak, with increases in food prices ranging from 0.2 to 1.3 percent.

Hopefully, these results can help improve current food policy debates. “We can’t be sure of what actually caused food prices to rise” is a sounder basis for food policy than “Increased demand for food in China and India have caused food prices to rise.”

Published May 10, 2012

Accounting for Fish and Seafood in Discussions of Food Prices

Discussions of world food prices in the media and among policy makers usually focus on a few select commodities (e.g., maize, wheat, rice, etc.).

Though this obviously omits many other food staples, the underlying assumption is that various kinds of food are substitutes (imperfect ones, but substitutes nonetheless) for one another.

In cases where a more refined notion of food prices is used for discussion, the food price measure used is often the Food and Agriculture Organization (FAO) of the United Nations’ food price index, which encompasses five categories of food: cereals, dairy, meat, oils and fats, and sugar.

The FAO’s food price index, however, does not include fish and seafood. But since fish and seafood are a key source of protein for almost half of the world’s population, this is an important omission that can lead to making the wrong policy recommendations.

Some of my coauthors thus developed a fish price index similar to the other food (i.e., cereals, dairy, meat, oils and fats, and sugar) price indices already used by the FAO. We recently wrote a paper discussing this new fish price index, which the FAO will incorporate in its food price index sometime this year.

Here is the abstract of our resulting PLoS ONE article on the FAO’s fish price index, titled “Fish Is Food: The FAO’s Fish Price Index,” which was published this week:

World food prices hit an all-time high in February 2011 and are still almost two and a half times those of 2000. Although three billion people worldwide use seafood as a key source of animal protein, the Food and Agriculture Organization (FAO) of the United Nations — which compiles prices for other major food categories — has not tracked seafood prices. We fill this gap by developing an index of global seafood prices that can help to understand food crises and may assist in averting them. The fish price index (FPI) relies on trade statistics because seafood is heavily traded internationally, exposing non-traded seafood to price competition from imports and exports. Easily updated trade data can thus proxy for domestic seafood prices that are difficult to observe in many regions and costly to update with global coverage. Calculations of the extent of price competition in different countries support the plausibility of reliance on trade data. Overall, the FPI shows less volatility and fewer price spikes than other food price indices including oils, cereals, and dairy. The FPI generally reflects seafood scarcity, but it can also be separated into indices by production technology, fish species, or region. Splitting FPI into capture fisheries and aquaculture suggests increased scarcity of capture fishery resources in recent years, but also growth in aquaculture that is keeping pace with demand. Regionally, seafood price volatility varies, and some prices are negatively correlated. These patterns hint that regional supply shocks are consequential for seafood prices in spite of the high degree of seafood tradability.

Tveterås S, Asche F, Bellemare MF, Smith MD, Guttormsen AG, Lem A, Lien K, & Vannuccini S (2012). Fish Is Food – The FAO’s Fish Price Index. PloS one, 7 (5) PMID: 22590598