Thursday, July 10, 2008

I Was Wrong, Perhaps [Updated]

I've commented at both Marginal Revolution and John Phipps on posts reporting the existence of a World Bank report that blames biofuel initiatives in Europe and US for 75 percent of a 140 percent increase in food costs over the last 6 years. My comments boil down to: not credible as reported

But the devil's in the details. And people fall into traps of snap judgments. So I might well be wrong for the following reasons:
  • the definition of "food". It can mean the costs to the consumer of articles in the supermarket in the U.S. Or it could mean the prices of basic commodities: rice, wheat, corn, etc. averaged over 6.7 billion people. The impact using the first definition is much less than the second, and there could obviously be variations and permutations of the definition.
  • the definition of cause--which straw broke the camel's back? If you start with 2002 and look at all the changes in production and demand since, there are many things which impact price.
I need to remember the basic economics of agriculture, demand is inelastic and supply is inelastic--changes in supply can cause big changes in price. But so can changes in demand. So a change like biofuels which is new can cause big price hikes. And a new demand is going to seem more significant than a change in old parameters, like the levels of imports by India and China.

Having said all the above, and knowing we still haven't seen the actual study, I still expect the World Bank study to end up at one extreme of the argument, but I can't dismiss it as cavalierly as I did before.

[Update: See here for an update. Via Farm Policy.com]

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