International Herald Tribune - Europe

UN: High commodity prices from biofuel demand could last a decade

The Associated Press
Wednesday, July 4, 2007
ROME: A new report warned Wednesday that high commodity prices that have been blamed on increasing demand for biofuels could last through the decade - and also result in higher livestock prices.

The report said that while temporary factors such as drought and low stocks largely explain a recent hike in farm commodity prices, it will be structural changes in the entire agricultural system that will keep prices high over the next 10 years.

“Growing use of cereals, sugar, oilseeds and vegetable oils to satisfy the needs of a rapidly increasing biofuel industry is one of the main drivers in the outlook,” said a joint report by the Organization for Economic Cooperation and Development and the U.N. Food and Agriculture Organization.

Biofuels, which are made from corn, palm oil, sugar cane and other agricultural products, have been seen by many as a cleaner and cheaper way to meet the world’s soaring energy needs than with greenhouse-gas emitting fossil fuels.

The report, an annual 10-year assessment of global commodity markets, looked at the 2007-2016 period. It said that increasing amounts of maize in the United States, wheat and rape seed in the European Union, and sugar in Brazil, will be used for ethanol and bio-diesel production.

“This is underpinning crop prices and, indirectly through higher feed costs, the prices for livestock products as well,” said the report.

European leaders have decided that at least 10 percent of fuels will come from biofuels, like ethanol, by 2020, and the U.S. Congress is also considering increasing production of biofuels.

According to the OECD-FAO outlook, annual maize-based ethanol output in the United States is expected to double between 2006 and 2016. In the European Union the amount of oilseeds, mainly rape seed, used for biofuels is set to grow from just over 10 million tons to 21 million tons over the same period.

In Brazil, annual ethanol production is projected to double by 2016 from today. Chinese ethanol output is expected to rise to an annual 3.8 billion liters (1 billion gallons) - a 2 billion liter (528 million gallons) increase from current levels.