GFO study seeks to explain price spikes

Tuesday, May 17, 2011

by PAT CURRIE

A new study released by the Grain Farmers of Ontario has concluded that neither farmers nor the diversion of grain into production of ethanol can be blamed for persisting higher food prices that do not mimic any cyclic fall after each rise in world grain prices.

A comparison showed many similarities between the recent double price spike in 2008 and 2011 – when ethanol production boomed – and the double spike in 1974 and 1980, well before the ethanol industry was established.

Common factors were crop failure in key production regions caused by extreme weather, high oil prices and price increases for agricultural inputs like fertilizer. Both double spikes were followed by several decades of declining real grain and food prices.

"The truth is that farmers receive only about 19 per cent of the retail price of food," said GFO CEO Barry Senft.

The impact of bio-fuels on world food prices in 2007, according to the U.S. Secretary of Agriculture, was no more than three per cent.

In the 1970s and 1980, it was forecast that high food prices were permanent and that the world’s food-supplying capacity will have to increase by 70 per cent between 2000 and 2050, or about 1.1 per cent per year, just to keep pace.

But in inflation-adjusted dollars, crop and food prices moved to new lows after 1980 as the world food supply grew at a rate that exceeded population growth, the study found.

The GFO study noted that average world grain yield increased by 1.5 per cent per year from 1987 to 2007 and concluded that continued growth is achievable with modern agriculture. BF