Ethanol
drive will increase Caribbean food prices
By Al Edwards/Jamaica Observer
Trinidad Express
Caracas
Petroleumworldtt.com
05 06 07
The popularity of bio-fuels, more particularly
ethanol, has led to an increase in corn prices
which, in turn, has caused a spike in US food prices.
With the Caribbean importing most of its food from
the United States, this will result in a substantial
rise in the region's food bill and, as a consequence,
an increase in inflation.
At the end of 2005, the Food and Agriculture Organisation
(FAO) placed the Caribbean's food import food bill
at a little over US$3 billion. With corn now at
US$4 a bushel, US farmers are cashing in and are
harvesting to service not only agricultural requirements
but also the growing number of ethanol plants.
According to a study commissioned by the University
of Massachusetts, corn-based ethanol is a success
and is set to account for 10 per cent of the US'
energy supply. President George W Bush is determined
to reduce US gasoline consumption by 20 per cent
over the next 10 years. This has led to the construction
of 80 ethanol plants. South Dakota already has
12 plants with another five more under construction.
The study says that four billion bushels of corn
will have to be grown this year to service a potential
US$40-billion ethanol industry, as well as feed
the wealthiest country on earth.
Last year, corn accounted for 10 per cent of the
US$305-billion farm industry of the United States.
This high demand for corn will push food bills
up faster than the overall rate of inflation.
"I think the probability now is very large
- for 2007 and 2008 - that price increases in the
food and beverage sectors are going to outpace
the general inflation rate," said economist
Christopher Hurt of Purdue University.
"Energy has been the bigger component of
inflation these past two years, while food helped
to moderate that," he added. "Now you
have a scenario where food and beverage are going
to lead inflation."
Hurt is predicting that food prices in the United
States will increase between five and seven per
cent during this year and the next. This will undoubtedly
affect prices of food imports in the Caribbean.
Already Jamaica Broilers, arguably the largest
operator of its kind in the English-speaking Caribbean,
has had to raise the price of chicken due to the
rising cost of imported grain.
Jamaica Broilers' CEO Robert Levy attributes the
fall in the group's profit margins to the significant
increase in the US dollar cost of imported grain
since September 2006. Over the last four periods,
corn has increased in price on the Chicago Board
of Trade by 50 per cent from US$2.60 per bushel
to US$3.90 per bushel.
Jamaican consumers now have to pay five per cent
more for chicken meat as a direct result of the
increase in the cost of corn.
"It is way past our ability to absorb corn
prices, and it is moving so fast that it is almost
scary," said Jamaica Broilers' vice president
of poultry operations, Christopher Levy. "I
know it is not good news, but it is a reality that
we have to face."
Exacerbating this situation is the fact that global
grain stocks are at their lowest in 30 years. Some
agriculturalists estimate that 30 per cent of the
US grain harvest is likely to be devoted to ethanol
production by 2008, up from 16 per cent in 2006.
University of Missouri economist Ron Plain said
that the growth in US ethanol production will increase
the price of meat, eggs and dairy by around 12
per cent by 2009.
Ethanol production is causing a major shift in
agriculture, and it is not just products that use
corn that will see an increase, but food that comes
from animals that feed on corn. Based on the history
of corn pricing, the US has reached the plateau
for prices to increase, and corn will remain at
around US$4 per bushel for a while.
US consumer prices increased more than expected
in February as the cost of food rose at its fastest
rate for two years. Climbing energy prices also
helped push the Consumer Price Index up by 0.4
per cent, double January's 0.2 per cent rise. Separately,
a University of Michigan report showed consumer
confidence fell to a six-month low in mid-March.
Food prices rose 0.8 per cent and energy prices
increased 0.9 per cent last month. The bottom line
is US inflation is not going down, and that will
undoubtedly affect the Caribbean.
Speaking
on World Food Day in October 2005, St Lucia's
minister of agriculture at the time, Ignatius
Jean, said: "In St Lucia and the wider Caribbean,
there is a significant imbalance in what we grow
and what we eat. Much of what we eat comes from
imported foods, leading to a US$3-billion food
import bill. Research carried out by the Caribbean
Food and Nutrition Institute (CFNI) indicates that
a great proportion of the imported foods we consume
indeed contribute to the many illnesses and diseases
affecting our peoples and development."
The increase in corn prices as a result of the
demand for ethanol is all the more reason for the
Caribbean to reduce its food import bill and rely
more on home-grown agricultural products.
Dominica relies on home-grown produce
The premier of Nevis, Joseph Parry, noted that
Dominicans are increasingly becoming dependent
on local produce and foods and are the better for
it.
"The people of Dominica, who use their local
food more extensively than we do, have an average
lifespan of two to three years more than the Nevisian
and the Kittitian," he said.
"It
is clear that this phenomenon can be aligned
to our relative consumption patterns. I
am making this point to say to the people of Nevis
that we need to return to the soil and the people
need to return to consuming what we grow and what
we produce locally. We insist on eating out of
these tins and plastics and perhaps we should follow
the people of Dominica and eat out of the soil
where we produce our good food on Nevis."
Earlier this year, Selwyn King, spokesman for
the Trinidad-based Caribbean Agricultural Development
Institute, expressed concern regarding the increase
of genetically modified food products that are
appearing more frequently in grocery stores across
the Caribbean. Grenada has now taken measures to
address this situation and has set up a body to
develop safety standards and encourage locally
grown produce.
Trinidad
Trinidad & Tobago
has already seen the devastating impact of rising
food prices on inflation. Data
released by the Central Statistical Office in Trinidad
in November 2006 revealed that inflation hit the
10 per cent mark in October of that year with food
prices registering an increase of 26.5 per cent
for the month of October. The twin-island republic
is now making a concerted effort to reduce its
dependency on imported food and look to more Trinidadian
agricultural goods.
Jamaica
According to the Statistical Institute of Jamaica,
from January to December 2006 Jamaica spent US$616.8
million on imported food, signifying a small increase
on the US$602.9 million spent in the previous year.
Putting these figures in their proper context,
during the calendar year 2006, Jamaica imported
goods amounting to US$5.650 billion, representing
a 19.2 per cent increase on the previous year.
The minister of finance, Dr Omar Davies, underscored
the importance of the local agriculture sector
to the reduction of inflation during his contribution
to the 2006/2007 budget debate.
"The rate for the calendar year 2006 was
5.8 per cent and the rate for the fiscal year was
6.6 per cent. The calendar year figure of 5.8 per
cent was the lowest in over 30 years," said
Davies. He informed the House that a major factor
impacting this sharp reduction in inflation was
the recovery in agriculture.
"The truth is, we built a programme for 2006/2007
around a projected inflation of 9.5 per cent," said
Davies. "Given the extent to which domestic
food plays a role in the basket of goods and services,
the recovery in agriculture was the major factor
in bringing inflation down, as was the relative
stability in international oil prices."
Conclusion
The world's poorest nations are devastatingly
affected by spikes in food prices and most of the
Caribbean comes under that category. A study by
C Ford Runge and Benjamin Senauer of the University
of Minnesota concluded that the rush into ethanol
threatens to divert corn and other food crops into
bio-fuels.
The
study said: "Resorting to bio-fuels is
likely to exacerbate world hunger. Several studies
by economists at the World Bank and elsewhere suggest
that caloric consumption among the world's poor
declines by about half of one per cent whenever
the average prices of all major food staples increase
by one per cent."
If, all other things being equal, the prices of
staple foods increased because of demand for bio-fuels,
the number of food-insecure people in the world
would rise by over 16 million for every percentage
increase in the real prices of staple foods. That
means that 1.2 billion people could be chronically
hungry by 2025, 600 million more than previously
predicted.
The study was of the view that the bio-fuel craze
could push up corn prices 20 per cent by 2010 and
41 per cent by 2020. This could well affect other
crops such as rice or wheat, since farmers are
converting their fields to corn or other plants
more profitable because of their potential for
ethanol.
/Jamaica Observer
Trinidad
Express
Wednesday, May 2nd 2007
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©2007 Trinidad Express. All Rights Reserved.
