Producing ethanol and biodiesel from food crops is “questionable,” Sunny Verghese, chief executive officer of Olam International Ltd., a Singapore-based world commodities trader, told a global sugar conference in Dubai this week. As much as 150 million metric tons of grains globally are used to produce ethanol, he explained, added that making ethanol from corn is “inappropriate.”
At the same time, Verghese acknowledged that food prices have doubled in the past 10 years due more to the result of population growth and increased demand for protein-based diets than any cyclical reasons. Three of the largest annual gains in food prices in the past 20 years occurred since 2007, with the United Nations Food & Agriculture Organization’s global food price index climbing to a record in 2010. Wheat and soybeans led commodities gains last year and corn jumped to a record in August. “We’ve had a long period of food real price declines and food surpluses and we’ve had three very rapid food crises,” Verghese said. “The price inflation that we’ve seen in the three episodes is more a structural story and not a cyclical issue.”
The United Nations Food & Agriculture Organization has predicted that global food output must rise 70 percent by 2050 to feed a world population expected to grow to 9 billion from 7 billion now and increasingly wealthy consumers in developing economies are consuming more meat, another conference speaker added.
High food costs contributed to civil unrest across the Middle East and North Africa in 2011, toppling governments in Tunisia and Egypt. Surging food prices triggered more than 60 riots worldwide from 2007 to 2009, according to the U.S. State Department. In India, about 60 percent of what people spend is on food, compared with 70 percent to 80 percent in Africa, 45 percent in China, 9 percent in Europe and about 10 percent in the United States, according to Verghese. “When you have 50-percent price inflation in the core commodities and 70 percent of your consumption basket is spent on food, then you have a serious problem,” Verghese noted.
High food prices are needed to send farmers a signal to increase plantings, Verghese acknowledged. Countries from India and Egypt to Vietnam and Indonesia banned exports of rice, a staple for half the world, during the 2008 food crisis. Russia in 2010 banned grain exports after the country’s worst drought in at least half a century destroyed crops and cut production. “Price controls are precisely the wrong thing to do when you want to induce a supply response. “You are distorting the price signal to the farmer to try to increase its production,” Verghese concluded.
