OECD report on biofuels confirms higher oil prices are largest contributor to higher grain prices.

[JohnWxy]

http://www.ethanolrfa.org/objects/documents/1826/oecd_review_7.16.08.pdf

http://www.biofuelsjournal.com/articles/RFA__OECD_Report_on_Biofuels_Confirms_Higher_Oil_Prices_Largest_Contributor_to_HIgh_Grain_Prices-60626.html


The data generated in the The Organization for Economic Cooperation and Development (OECD) report do not support the conclusions or policy recommendations made by the OECD. Nor do the data support OECD officials’ calls for a moratorium on biofuels. Rather, the data support the conclusions that biofuels policies are having a minimal impact on food prices and result in reducing greenhouse gas emissions (GHG).

For instance, OECD credits ethanol produced from corn starch with a 30% reduction in greenhouse gas (GHG) emissions if using natural gas, and a 50% reduction in GHG if the facility is powered by biomass. Based on this finding, a moratorium is not warranted. In addition, the modeling included in the report suggests that a 28% drop in world oil prices would cause a 12% reduction in world coarse grain prices ($0.75 per bushel in the case of corn today), underscoring the fact that skyrocketing oil prices are the largest driver behind increasing grain prices.

By contrast, removing biofuel mandates like the Renewable Fuels Standard (RFS) would reduce coarse grain prices by just 1% ($0.06 per bushel of corn). Even abandoning all biofuels policies would only yield an average coarse grain price reduction of 7% ($0.45 per bushel).

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In terms of land use issues, the OECD model predicts biofuels policies will have only minor impacts on global crop area. For example, implementation of the conventional biofuels portion of the Energy Independence and Security Act will increase total crop area in North America by about 0.2%, according to the model. Implementation of EISA is projected to increase world total crop area also by about 0.2%. When lands used to cultivate feedstocks for “second generation biofuels” are considered, EISA and the EU Bioenergy Directive combined are expected to increase global crop area by about 0.75%. (Figure 2.10 of the report). The model also found that elimination of biofuel support policies potentially reduces land under cultivation by 1.9 million acres in North America. This is equivalent to about 0.5% of principal crop area in the United States.

[RC]

1. Why do I have that strong urge to put on my hip waders before clicking on the links?

[JohnWxy]

2. Maybe you should have looked at the OECD report itself - here's the link.

http://www.oecd.org/dataoecd/19/62/41007840.pdf

IF YOU CLICK on the link give it a few seconds to download. The report is 119 pages long.

I'll provide you with page references to support the quotes from the article referred to in the OP:

"In addition, the modeling included in the report suggests that a 28% drop in world oil prices would cause a 12% reduction in world coarse grain prices." see: (Fig. 2-17, pg 73 of the OECD report)

"By contrast, removing biofuel mandates like the Renewable Fuels Standard (RFS) would reduce coarse grain prices by just 1% ("no mandates" light gray area of the bars in the chart.)($0.06 per bushel of corn). Even abandoning all biofuels policies would only yield an average coarse grain price reduction of 7% ($0.45 per bushel)in the midterm."
see: (Figure 2.5 p. 59 of the OECD report). .

"In terms of land use issues, the OECD model predicts biofuels policies will have only minor impacts on global crop area. For example, implementation of the conventional biofuels portion of the Energy Independence and Security Act will increase total crop area in North America by about 0.2%, according to the model. Implementation of EISA is projected to increase world total crop area also by about 0.2%. When lands used to cultivate feedstocks for second generation biofuels are considered, EISA and the EU Bioenergy Directive combined are expected to increase global crop area by about 0.75%." see: (Figure 2.10, p.65 of the OECD report).


I think if you look at the charts in the report you'll see the article accurately reports what the charts show.

One thing the OECD report discretely did not go into was the reduction in the price of oil and gas due to biofuels meeting some of the demand for transportation fuel. estimates vary and depend upon whose estimate of price-demand elasticity for oil you are using but a Merrill Lynch commodity strategist Francisco Blanch estimated increased ethanol production cut the cost of gasoline by 15% or an additonal $.60 per gallon or $22 per barrel (at the peak price). OF course, that additional cost would have affected food prices too.

And how significant is 15%? well, I hate to contemplate this but, if gas tries to go to $5.00 next summer (or the next)that 15% changes $5.00 a gallon to $4.35 a gallon. WHat's the difference between $5.00 and $4.35? well, yes $.65 but more importantly it's also the difference between going into a depression and not going into a depression. If gas gets to $5.00 a gallon the odds of going into a depression get uncomfortably high. (I don't even like talking about this but it's better to not ignore the possibility).