Economist: Biofuels may cause a rise in food prices

LINCOLN - Increased production of biofuels such as ethanol may help farmers' bottom lines and address climate-change concerns, but eventually could lead to a sharp rise in food prices worldwide, a senior economist for former President Bill Clinton said Monday.

“Worldwide, especially in developing countries ... food price increases are definitely something we're going to have to come to grips with,” said David Sunding, who served on Clinton's Council of Economic Advisers.

Sunding is now a professor of agricultural and resource economics at the University of California-Berkeley and co-director of the UC-Berkeley Water Center. He spoke to water experts at the University of Nebraska-Lincoln's fourth annual Water Law, Policy and Science Conference.

The combination of rising energy prices and demand for corn, which is used to produce ethanol, will continue to drive up commodity prices, Sunding said.

While poor and developing countries might suffer more because of food-price spikes, the United States would not be spared and may be forced to replace one government program with another, Sunding predicted.

Corn prices have already begun to soar, but price hikes may not be confined to Nebraska's favorite crop. A rush to turn more acres into corn production may decrease supplies of other commodities, driving up prices of them as well.

The resulting higher market prices could then dampen support for government subsidies that are designed as price supports to help farmers reap profits when markets are down.

But Sunding said higher food prices that may decrease support for direct government payments to farmers may warrant another government program - one to purchase food to keep prices affordable and prevent hunger.

Energy costs will also be a factor, said Sunding, who predicted that “ag policy will ... become energy policy.”

“The ag sector,” he added, “is so vulnerable to energy price changes.”

Remote areas such as those in Nebraska and South Dakota may be particularly susceptible to rising energy prices, Sunding said, because transportation routes from where crops are grown to where they are distributed are longer. And fuel costs may make pumping water needed to irrigate corn and other sources of biofuels increase.

“The cost of water pumping could increase dramatically,” Sunding said.

A study released last month by the Energy Information Administration, an arm of the federal government that provides energy statistics, forecast that world oil prices may decrease over the next five or six years, then steadily increase over the next two decades.