Do biofuels compete with food?

Biofuels Affect Food Commodity Prices

The price for many food commodities, including corn, soybeans and other oil-producing grains, fluctuates through the simple market factors of supply and demand. It should be no surprise, then, that researchers attribute slightly less than two percent of food commodity price increases in recent years to growing demand for biofuels [source: Naylor]. While these analysts don't anticipate wildly swinging price spikes for food, they do anticipate that, like other price changes in the commodity market, these will lead to price increases for foods such as cereal, bread, milk and meat.

Those last two items might seem odd to be victims of biofuel-induced price changes, but many biofuel crops are produced in large part to feed livestock. When the price of corn goes up, for example, pig farmers see the price to raise their pigs rise. The farmers, in turn, ask higher prices for their pork, which grocers and restaurateurs pass on to consumers. Whether steak, bacon, eggs or milk, the trickling down of price fluctuations is a fact of economics [source: Businessweek].

Much of the concern over biofuels and the commodity market stems from speculation about how fuel production will affect the price/demand equation. In 2006, for example, ethanol producers made up one-fifth of the market for corn in the U.S. If ethanol demand increases due to government regulations, critics argue, that demand could consume half of that nation's corn, forcing other users of the staple vegetable to raise prices [source: Businessweek].

But countering this critique is another, more optimistic prediction: that increased demand for biofuels, unlike demand for finite fossil fuel resources, can turn into increased supply.