"In early April 2008, Dr. Donald Mitchell, Lead Economist in the Development Prospects Group
of the World Bank, prepared a draft working paper that examined the sharp increase in global
food prices between January 2002 and February 2008 and attempted to identify causal factors for
the increase. The report was
intended solely for use within the Bank and was not authorized for citation or circulation"(my italics_JW).
"The lead sentence in Mitchell’s summary attributes the vast share (threequarters)
of the increase in global food prices to the large increase in biofuels production in the U.S. and EU. The report was leaked to the British newspaper The Guardian which published Mitchell’s conclusions just prior to the opening of the G8 HokkaidoToyako Summit, and has received worldwide attention."
THe link below is to a concise critique of the remarks by Mitchell, but I would like to add an observation. Mitchell asserted that biofuel demand for crops (this is almost entirely demand for corn for ethanol that he is talking about) is the cause of 75% of the rise in prices of food from Jan 2002 to Feb 2008. I think it's worth noting that in the period food commodities went up in price
140% petroleum prices over the same period went up
400% and shipping rates went up 600% since the end of
2003. Many of the countries which have felt the inflation in food prices the hardest import much of their food.
http://www.ethanolrfa.org/objects/documents/1812/lecg_work_bank_critique.pdf
A careful reading of Mitchell’s study reveals that Mitchell identifies several factors that have
contributed to the rise in food prices.
· Increases in petroleum prices and related increases in agricultural inputs derived from
petroleum, notably fertilizer and chemicals.
· Drought in Australia in 2006 and 2007 and poor crops in the EU in 2007 which reduced
supplies of grain.
· Increased demand for oilseeds in China to supply a rapidly expanding livestock and
poultry sector.
· The decline in the value of the dollar.
· Speculation by institutional investors.
· Export bans and restrictions that restricted access to supplies of food crops.
· Increased demand for biofuels which, in addition to increasing demand for food crops,
led to “large land use changes” which reduced supplies of crops (wheat) that compete
with food crops used for biofuels.
These factors have been widely discussed and accepted by many analysts. Mitchell goes on the
assign weights to many of the factors; specifically:
“The decline in the value of the dollar has contributed about 20 percentage
points to the rise in food prices. Thus, the combination of higher energy
prices and related increases in fertilizer prices, and dollar weakness caused
food prices to rise by about 35 percent from January 2002 until February
2008 and the remaining threequarters of the 140 percent actual increase
was due to biofuels and the related consequences of low grain stocks,
large land use shifts, speculative activity, and export bans.”
Mitchell’s analysis is largely subjective. While he discusses each of these factors in some detail
he fails to describe how he arrived at the relative weights described above. Specific points of
criticism include:
~~
~~
2. Mitchell contends that increased biofuel production has increased the demand for food
crops and has been the major cause of the increase in food prices. Specifically he states
that almost all of the increase in global maize production from 2004 to 2007 went for
biofuels in the U.S. with the net effect being that the increase in global consumption for
other uses came largely from stocks.(my emphasis_JW) In fact, current USDA Foreign
Agricultural Service Statistics report that world maize production increased 74 million tonnes between
2004/05 and 2007/08 (715.77 MT to 789.812 MT). During this same period the amount
of corn used to produce ethanol in the U.S. increased 42.6 million tones (33.6 MT in
2004 to 76.2 MT in 2007). 2 Consequently, the expanding U.S. ethanol industry used only
slightly more than half the increase in global corn production between 2004 and 2007.(my emphasis._JW)
4. Mitchell attributes the increase in world wheat prices largely to reduced production
caused by diversion of wheat area to corn in the U.S. and to oilseeds (rapeseed and
sunflower) in Canada, EU, Russia, Ukraine, and Kazakhstan. Specifically he focuses on
the significant increase in area planted to corn in the U.S. in 2007 and consequent decline
in soybean area. He does point out that this pattern is being reversed this year with
higher soybean and lower corn acreage. Examination of acreage patterns fails to show
the sharp land shifts Mitchell blames for the decline in wheat production and increase in
prices.(my emphasis_JW) Table 1 summarizes world area harvested for corn and the grains corn competes
with for land and the major oilseeds used to produce biodiesel for two five year periods
1999-2003 and 2004-2008 using current (June 2008) USDA projections for 2008.
So basically, the data Mitchell provides doesn't even support his conclusion. Additionally, as for - "Increases in petroleum prices and related increases in agricultural inputs derived from petroleum, notably fertilizer and chemicals" - Mitchell lumps that together with the decline in the dollar to say:
"the combination of higher energy prices and related increases in fertilizer prices, and dollar weakness caused food prices to rise by about 35 percent from January 2002 until February
2008.". Quite a glossing over of some big factors.
If this paper, leaked by the World Bank, would have been submitted in a graduate seminar in economics, it would have been thrown back into the face of a student submitting it. It's not even professional calibre work. It's more like a casual conversation in a bar or coffee-house (if you want to be more upscale or perhaps intellectual sounding).
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
