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Food prices to stay high on 'grain drain' fuel
Updated: 2008-05-29 20:33

Grain Drain

But it singled out the big drive to produce biofuels as an alternative to fossil fuels, a push the US government is sponsoring heavily, and Europe as well.

"Biofuel demand is the largest source of new demand in decades and a strong factor underpinning the upward shift in agricultural commodity prices," said the report, adding it was time to consider alternatives.

The benefits at environmental and economic level as well as in terms of energy security were "at best modest and sometimes even negative," the report said.

Under US plans, about a quarter of the US corn crop will be channeled into ethanol production by 2022 while the European Union is also aiming for as much as 10 percent of road transport fuel to be produced using crops by 2020.

While it was hard to always identify exactly how much retail food prices were affected by food commodity prices, the direct impact was clearer in poorer countries where there is less of the value-added, packaged and processed food that is consumed more in wealthy regions, the report said.

The proportion of total funds that households use to pay for food varies hugely, from more than 60 percent in Bangladesh, to 40 or 50 percent in many other developing countries, and just 10 percent in the United States or Germany, the report said.

It also highlighted the impact of financial investors in the commodities futures markets, saying this added upwards pressure on prices in the short term but that the jury was still out as to the long-term impact, beyond generating greater volatility.

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