The Role of Biofuels as a Possible Major Factor in the Food Crisis 2007-08

Seminar paper from the year 2011 in the subject Economics - International Economic Relations, grade: 1,3, University of Freiburg (Institut für Volkswirtschaftslehre und Finanzwissenschaft I), course: The Economics and Politics of Global Agriculture and Trade, language: English, abstract: Between 2005 and 2008 the prices of most major cereals almost doubled or tripled, causing violent food riots all over the world. World Bank President Robert B. Zoellick emphasised in mid-April 2008, at the peak of the price surge, that 'a doubling of food prices over the last three years could potentially push 100 million people in low-income countries deeper into poverty' (WB 2008). This price rise took place in a very short period of time and especially the rapid increase between January 2007 and April 2008 (and the immediate decline afterwards) needed an explanation. A lot of rash statements were made meanwhile and immediately after the food crisis, coming from the media, politicians and lobbies. Most of the non-academic commentaries lacked differentiation and evidence in the attempt to explain the reasons and factors which caused the price spike. Western policy makers insisted on explaining that the developing and emerging countries themselves were responsible for increasing prices 'due to poor agricultural policies and changing eating habits in developing nations' as argued by German Chancellor Merkel (Reuters 2008). The media and different pro-poor lobby groups used biofuels or speculation as scapegoats for the entire price rise while the academic literature discussed the weight of these factors and added others like global economic growth, higher energy prices, declining stocks, adverse weather events and decline in agricultural investment (Elliot 2008). This paper aims to summarise the scale of influence that different factors had during the price surge, dealing especially with biofuels as a possible major cause of the crisis. Therefore, it is necessary to first examine the characteristics of the price surge. Secondly, the role of every single suspicious factor will be evaluated, and finally, the reasons behind the appearance of the most important factor will be investigated.