The impact of biofuels on commodity prices
UK Department for Environment, Food and Rural Affairs
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Global biofuel production has seen a three fold increase over the last 20 years. Price spikes are common in agricultural markets due to a combination of relatively inelastic demand and volatile supply. Historical data (using 1987 as the base year) shows that world wheat prices were at similar level to present levels in 1995 and 1996, less than the 2007 peak in nominal terms but 15% higher in real terms. Sugar prices peaked in 2003 and in early 2008 fell below production costs of all major producers (including Brazil). Other things being equal, biofuel production should put upward pressure on cereal, oilseeds and sugar prices. However, a closer look at recent price developments suggests that there are a number of factors affecting current commodity prices some of which are cyclical and some of which are structural in nature.
Added on 23 February 2009
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