The Impact of Biofuels on Food Prices; The Experiences of Brazil and United States

Abstract

Using crops for fuel generates concerns over competition with food uses. In 2008 a global food crisis hit the world during a record-high commodity and energy prices that prompted hunger and political unrest in developing countries. This took place at the same time when biofuel production, reached its pinnacle in developed countries. This paper examines the effect that biofuel prices and or production has had on food prices in Brazil and United States (U.S.) by employing the panel cointegration and Dynamic Ordinary Least Squares (DOLS) method of analysis. In regressing food prices as a function of demand and supply factors, such as oil prices, biofuel prices, interest rates and biofuel production, the study found that the increase in biofuels production over the past eighteen years has had a significant impact on food prices. Over the period January 1995- December 2013, the study estimates that a one hundred percent increase in biofuels production across time and between countries results in the increase of food prices by 21,9%. The study therefore rejects the null hypothesis that states, biofuel production does not have a statistically significant negative impact on food prices in U.S. and Brazil, and accepts the alternative that biofuel production does have a statistically significant negative impact on food prices in U.S. and Brazil. Other predictors of food prices that the study revealed as significant were oil and interest rates. Policy recommendations for other countries like South Africa are therefore, made based on the results obtained.