June 11, 2007

Soaring demand for biofuels is boosting food prices, UN says

Rome, Italy – An increase in global food import prices is partly due to the soaring demand for biofuels, according to a new report by the Food and Agriculture Organization of the United Nations (FAO). Global expenditures on imported foodstuffs are expected to surpass US$400 billion in 2007, almost five per cent higher than the record set in 2006.

The report says the bulk of the increase is caused by rising prices of imported coarse grains and vegetable oils, the commodity groups featured most heavily in biofuel production. Import bills for these commodities are forecast to rise by as much as 13 per cent from 2006. More expensive feed ingredients will also lead to higher prices for meat and dairy products.

The report also says that generally high and volatile sugar prices could lead to smaller import volumes and a resulting drop in price, but record high international freight rates will put additional pressure on countries’ abilities to cover their food import bills. Developing countries as a whole are anticipated to face a nine per cent increase in overall food import expenditures in 2007, with the most economically vulnerable countries hardest hit.

World cereal production in 2007 is forecast to reach 2,125 million tonnes, up six per cent from 2006’s reduced levels, and higher than FAO’s previous forecast in May. “The prospect of a strong recovery in global cereal production in 2007 is a positive development, but total supplies will still be barely adequate to meet the expected rise in demand, not only from the traditional food and feed sectors but in particular from the fast-growing biofuels industry,” says Abdolreza Abbassian, one of the authors of the report. “This means prices for most cereals are likely to remain high in the coming year.”

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