Biofuels and Grain Prices: Impacts and Policy Responses

On May 7, 2008, Mark W. Rosegrant, Director of IFPRI’s Environment and Production Technology Division, testified before the U.S. Senate Committee on Homeland Security and Governmental Affairs on the impact of biofuels on grain prices and its policy implications. Dr. Rosegrant’s analysis focused on three potential scenarios:

1. Recent food price evolution with and without high biofuel demand
2. Impact of a freeze on biofuel production from all crops at 2007 levels
3. Impact of a moratorium (elimination) on biofuel production after 2007.

From the conclusion: “It is therefore important to find ways to keep biofuels from worsening the food-price crisis. In the short run, removal of ethanol blending mandates and subsidies and ethanol import tariffs, and in the United States—together with removal of policies in Europe promoting biofuels—would contribute to lower food prices. But for the longer term, it is even more critical to focus on increasing agricultural productivity growth and improving developing-country policies and infrastructure related to the storage, distribution, and marketing of food. These factors will continue to drive the future health of the agricultural sector and will play the largest role in determining the food security and human well-being of the world’s poorer and more vulnerable populations.”  Read full testimony.