I have noted before that if someone comes to their senses over biofuels then soft commodity prices don't look flash - least of all in the light of food scarcities driven by diversion to biofuels. For N.Z. that might mean (further) trouble for dairy prices.


This from the FT:

UN agency calls for rethink on biofuels

ROME/MILAN, Oct 7 - The western world needs to rethink its rush to biofuels, which has done more harm pushing up food prices than it has good by reducing greenhouse gases, a United Nations report said on Tuesday.

The U.N. Food and Agriculture Organisation (FAO) said policies encouraging biofuel production and use in Europe and the United States was likely to maintain pressure on food prices but have little impact on weaning car users away from oil.

”The report finds that while biofuels will offset only a modest share of fossil energy use over the next decade they will have much bigger impacts on agriculture and food security,” it said in its annual State of Food and Agriculture report.

Growing demand for biofuels will boost prices of agricultural commodities in the next 10 years, the report said.

For instance, if demand for biofuel agricultural feedstock rose 30 percent by 2010 from 2007, it would drive sugar prices up by 26 percent, maize prices by 11 percent and vegetable oil prices by 6 percent, FAO said.

This summary is to the point. Doubts can be raised about the role of speculation - a lazy brain culprit for almost any price rise people are emotional about. In fact speculation helps smooth price paths, improves the quality of resource availability and cost signals and tends to be a result rather than a cause. That is a small gripe however....

"The five factors that are driving up costs"

* The Guardian,
* Tuesday May 27 2008 (thanks to Grant Woolliams for the alert)

Why is there a problem with food prices now?

Several factors have come together to drive agricultural commodity prices up:

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It is always useful to read someone else's views on what we think we know a lot about, situations where we think we have all the angles covered and things we take pride in...... here in N.Z. we would do well to try the perspective of this writer.

Saudi Arabia of Milk' Hits Production Limits
New Zealand Dairy Thirsts for Capital - A Big Issue in Food
By PATRICK BARTA
Wall Street Journal May 8, 2008; Page A1



ASHBURTON, New Zealand -- As global food costs rise, triggering protests from Egypt to Indonesia, it's clear the world needs more production. What is happening here shows one reason that response may be slow to come.

New Zealand is the biggest exporter of dairy products amid soaring dairy demand, and economists worry there won't be enough milk production. Many farmers oppose expansion and foreign investors. WSJ's Patrick Barta reports.

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Rebooting the Indian green revolution (Tyler Cowan pointed me to the link)

By Amy Yee in New Delhi (for the FT)

Published: May 2 2008 03:00

Ajit Singh, a farmer in the poor northern state of Uttar Pradesh, had never seen a computer until four years ago when ITC, the Indian agribusiness-to-hotels conglomerate, installed a PC in his village, Kurthia.

Now the thin 47-year-old farmer visits the ITC station, known as an "e-choupal" after the Hindi term for "gathering place", every day for online access to news-papers, crop prices, weather forecasts and farming techniques. As ITC's village manager, he passes on what he gleans to fellow farmers.

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The following article by Tyler Cowan which appeared in the NYT makes critical points - and given N.Z.'s dependence on dairy trade, they are the more important for us to grasp.

In any market where supply takes longer to adjust and change than demand, trade provides a means for meeting new demand rapidly - precisely the situation we find ourselves in at present with rising food prices.....

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The last month has seen a new twist in crises. We appear to have moved to food crisis... and no question or jokes about the level of concern or harsh reality. Price changes are not the slippery sort of evidence that pervades the climate change debate. Food riots attest to the level of concern. Easy read statistics (502% increase in the price of rice in places, dairy prices up way over double digits in N.Z., all wheat based and derivative food experiencing strong increases) attest to why the concern exists.

The NZBR point to Ronald Bailey, writing in Reason magazine (April 8, 2008) who sums up the situation well...


"In the last year, the price of wheat has tripled, corn doubled, and rice almost doubled. As prices soared, food riots have broken out in about 20 poor countries including Yemen, Haiti, Egypt, Pakistan, Indonesia, Ivory Coast, and Mexico. In response some countries, such as India, Pakistan Egypt and Vietnam, are banning the export of grains and imposing food price controls."

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Every time some closet interventionist with a poor memory suggests putting a bit more government work on the ball, just recall this...

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New Zealand's pasture-fed beef industry is going to experience a golden age according to AgResearch.

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