Biofuels won’t eclipse food for commodity demand - report

By Neil Merrett

- Last updated on GMT

Food consumption, not biofuel demand, will remain the primary driver for commodity use in the coming years, requiring more efficient manufacturing and transportation in the industry, says a new report.

According to financial group Rabobank, while biofuel has contributed to a recent trend of higher commodity prices, it is seen as just one of many factors driving a boon in ingredient costs.

Many agricultural producers and commodities groups have cited the growing use of crops in alternative fuels for compounding the high price of goods like grains required for food formulation. Some food industry groups have therefore called for a reduction in grains and other commodities being set aside for producing biofuel.

However, the report, entitled ‘The Boom Beyond Commodities’, singles out what Rabobank calls the 4 Fs’ of food, fuel, feed and fibre, for pushing commodity demand during the current ‘credit crisis.’

Potential demand benefits

Amongst this increasing global demand, the report claims that agricultural production does stand to benefit in the long term from current investment in the sector.

Overall growth in demand for commodities will therefore allow companies involved in food manufacture and agricultural production to post substantial growth in the future, particularly in the animal proteins and dairy sector, the report claimed.

“The combined effects of this increased demand are pressuring agriculture to operate more efficiently, which has led to more investment in the industry,”​ stated the report. “Additionally, transportation networks around the world are being improved and countries with extensive natural resources that were previously relatively inaccessible are now far more accessible.”

Michael Whitehead, vice president of the company’s Food and Agribusiness research unit said that growing demand and reduced output was likely to create some significant challenges for the industry as well as benefits.

“[It is] Challenging in the sense that both food and non-food demand for agricultural production will continue to increase against limited resources,”​ he stated. “[There is promise though] as industries continue to innovate to improve factors such as yields, productivity and long-term sustainability.”

High levels of rural to urban migration in larger developing markets such as China and India will lead to an estimated 50,000 people a day moving into cities where food and energy requirements remain much higher that in the countryside, was highlighted by Rabobank as one potential problem.

It is in this challenging market though where some groups believe that food production must take priority over biofuel needs.

Industry biofuel concerns

Last month, the American Bakers Association (ABA) said it was calling for a reassessment of current crop levels being used in production of bioethanol and other alternative fuels, in order to help turnaround an eight per cent rise in overall food prices during 2008.

The group said that it has particular concerns about the true impact of bioethanol production on the bakery industry.

"While USDA argues that only 2 to 3 per cent of the increase in food prices is due to the ethanol program, many other economic, business and social organizations have strong evidence indicating that as much as 75 per cent of the rise in food prices can be attributed to ethanol,"​ said Sanders, citing World Bank figures. "Easing this mandate would provide balance between food and fuel policies which is critical."

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