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Kraft calls for biofuels policy overhaul

By Sarah Hills , 05-Sep-2008
Last updated on 05-Sep-2008 at 16:43 GMT

The biofuels policy in the US is resulting in soaring global food prices, along with unprecedented high input costs for the food industry, and needs to be changed, according to chairman and CEO of Kraft Foods, Irene Rosenfeld.

A number of economic and social forces are to blame for the price hikes - such as the weather, the weak US dollar and growing demand for food and energy across the world - but biofuels is the one area that can be controlled, she claimed.

Rosenfeld believes that “inflexible mandates” and “generous subsidies” risk creating inefficiencies and exerting pressures on food and feed supply systems, and these pressures are often inconsistent with market demands.

Kraft, along with other member companies of the Grocery Manufacturers Association (GMA), is working to raise awareness and petition lawmakers and regulators to adjust the current biofuels policy so it is more in line with market forces.

Michael Mitchell, Kraft spokesman, told FoodNavigator-USA.com: “We are one of many voices expressing concern about this issue, including leading food companies, world hunger organizations, consumer advocacy groups and environmental experts.

“Like many others, we believed that growing some of our fuel would be a simple and appealing alternative to drilling for it.

“Unfortunately, government production mandates and tax incentives for biofuels such as corn ethanol are having unintended consequences.

“While we support the development of sustainable fuels, we are concerned and hope policymakers will readjust biofuels policies to strike a better balance between the need for affordable food and alternative fuels.

“We believe it is important to take the time to develop the best possible policies to address the world’s need for affordable food, renewable fuels and protection of the environment.”

Under the Energy Independence and Security Act of 2007, the government mandated the production of nine billion gallons of biofuel (in the form of corn ethanol) in 2008 to reach 15 billion gallons by 2015.

It is argued that these mandates, along with tax incentives, are out of proportion and unsustainable.

Rosenfeld, who made her comments in an article for the GMA Centennial Special Issue, said that a quarter of the country’s corn crop is now diverted to ethanol production. As a result the costs of livestock feed and food have risen much more than anticipated.

She said: “At Kraft, we expect our commodity input costs to be up about $1.7bn, or about 12 percent, in 2008.

“That’s much higher than we anticipated at the beginning of the year and greater than the $1.3bn increase we saw in 2007.

“These input costs are already causing higher food prices, with more increases on the way.”

As part of the GMA, Kraft is participating in the Food Before Fuel Coalition. This was created to urge public officials to change policies that have increased reliance on food as an energy source and to develop alternative fuels that do not pit energy needs against affordable food and environmental sustainability.

Other companies and organization that are members of the coalition include Phillips Foods, the American Bakers Association, the Snack Food Association, Pilgrim's Pride and the National Retail Federation.

Oil and corn

A recent study commissioned by the Farm Foundation concluded that biofuel subsidies should not be singled out for blame when it comes to rising corn prices, as the underlying driver is the high cost of oil.

The study called What’s Driving Food Prices, said that the reasons behind rising food prices are complex and involve economic growth, international trade, currency markets, oil prices, government policies and bad weather.

Biofuels have also contributed and the growth in the use of corn for ethanol in the US has been largely responsible for the global increase in demand for the crop over the past four years.

However, the report said that quantitatively, most of the corn price increase is driven by high crude oil prices.

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