World Bank says food prices hit by biofuels

The Washington, D.C.-based World Bank said a global surge in food prices could push 100 million people into deeper poverty, and a report from the bank cites biofuels as a factor in the growing crisis.

The World Bank said concerns over oil prices, energy security and climate change have prompted governments to encourage the use of biofuels, but the bank said this has led to increased demand for biofuel raw materials, such as wheat, soy, corn and palm oil, and increased competition for cropland.

The bank said almost all of the increase in global corn production from 2004 to 2007, which is the period when grain prices rose sharply, went for biofuel production in the U.S., while existing stocks were depleted by an increase in global consumption for other uses.

Robert Zoellick, president of the World Bank is calling for donor governments to pony up $500 million to close an immediate gap identified by the United Nations' World Food Program.

About half of that half-billion dollar target has been met, according to Zoellick.

"This is not just a question of short-term needs, as important as those are — this is ensuring that future generations don't pay a price, too," said Zoellick at the International Monetary Fund-World Bank Spring Meetings in Washington.

The bank said the rising trend in international food prices continued and even accelerated in 2008, hitting the poorest countries the hardest (see Why ethanol production will drive world food prices even higher in 2008).

Zoellick said the poor spend as much as 75 percent of their income on food.

U.S. wheat export prices rose from $375 per ton in January to $440 per ton in March, according to the bank, and Thai rice export prices increased from $365 per ton to $562 per ton.

The World Bank said this comes on top of a 181 percent increase in global wheat prices over the 36 months leading up to February, and an 83 percent increase in overall global food prices over the same period.

While the World Bank does come down hard on biofuels, Zoellick points out that next-generation biofuels based on cellulose could hold promise.

"There is a second stage of biofuels that is under development with cellulosic materials, and a number of people highlighted that because it may be a way of avoiding some of the energy costs but without using current food production."

But he said the discussion on the use on food-based biofuels programs needs to begin.

"There are often good reasons for these programs related to energy security, but I have mentioned at least there is some incongruity between having subsidy programs at the same time you have tariffs as you do have in the United States."

In addiiton to asking for $500 million from donor governments, Zoellick is also proposing that sovereign wealth funds around the world allocate $30 billion, or one percent of their $3 trillion in assets, to investments for African growth, development, and opportunity.

The World Bank is owned by 185 member countries and is made up of the International Bank for Reconstruction and Development, and the International Development Association.

Last December, the bank detailed its renewable energy work in China, and talked about future plans for energy conservation in the country (see World Bank, China working together on clean energy).

Zoellick welcomed a recent decision that the food price crisis would be a topic for an upcoming G-8 meeting, although he said it may not happen soon enough.

"Frankly speaking, that G-8 meeting of Finance Ministers is in June, and we cannot afford to wait," he said.

"We have to put our money where our mouth is now so that we can put food into hungry mouths. It's as stark as that."

Zoellick said the collapse of the government of Haiti over the weekend is just the latest impact of the food price crisis.

"While I know that President Preval is committed to continuity and stability and will maintain his focus on economic and social development, this event just underscores the importance of quick international action," he said.

"We at the World Bank are granting an additional $10 million to Haiti for feeding programs, and I understand that others are looking to help."

Rising feedstock prices have put a number of deals on hold for the biofuel industry, which is riding out a rocky public trading market as well.

Ralston, Iowa-based Renewable Energy Group withdrew its plans for a $150 million IPO last month, becoming the second biodiesel producer of the year to pull out of a share sale (see Renewable Energy Group cancels IPO).

And in January, Melbourne, Australia-based Agri Energy put a hold on any project development in its home country, and said it would sell its U.S. biofuels business (see Agri Energy sells U.S. biofuel assets).

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