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Ag News
Rabobank Analysts Discuss the Food vs. Fuel Debate
Published Wednesday, August 20, 2008 at 09:08 AM
NEW YORK, Aug. 20 /PRNewswire/ -- The search for alternative fuels is often blamed for the high cost of food but, according to a new Rabobank podcast, it is just one of many factors. In the podcast, analysts with Rabobank Food & Agribusiness Research and Advisory (FAR) department discuss the food vs. fuel debate. (The full podcast is available online at www.RabobankAmerica.com/Rabocast.)
"Farmers' profitability doesn't change retail prices. And farmers' profitability isn't guaranteed by high grain prices. The same factors that are lifting grain prices are lifting production costs," said Aure-Flynn. "So, yes, the farm price index is at 162 percent of what it was 1990-1992, but at the same time the price index measuring what farmers pay -- for services, farm wages -- is 189 percent of base." (This information begins at 4:08 in the podcast.)
"First, food versus fuel is a handy sound bite," said FAR Executive Director Karol Aure-Flynn. "But, the fallacy of the headline is that there is a direct competition between the two; that it's either or. The reality is that strong global economic growth has changed the demand equation for U.S. commodities. (This information begins at 1:10 in the podcast.)
The depreciation of the U.S. dollar, soaring energy costs and changing trade policies are also contributing to the cost of commodities, which in turn is raising the cost of food -- it's not just fuel, it's a combination of all of these factors.
"We're seeing ourselves at a unique point in history where a lot of these factors have collided at the same time to create this food vs. fuel debate," said FAR Vice President Michael Whitehead. (This information begins at 2:02 in the podcast.)
These factors have included the upward impact on food demand of growing population and rising incomes, an increasing emphasis on food security, an uncertain global trading environment, and disruptions to some major global suppliers, such as droughts in Australia.
On the fuel side, many are seeking long-term sustainable ways to reduce reliance on foreign oils. Additionally, the long term availability of other fuel sources, such as coal, may also need close consideration. "The pace is heating up on finding sustainable alternatives to these energies and biofuels really are at the forefront of the debate," said Whitehead. (This information begins at 3:14 in the podcast.)
The combined factors have raised food prices nearly 6 percent and could see them go higher into 2009. This has led many to believe that prices are increasing faster than they should, given the record prices that farmers are receiving for their commodities. However, many consumers are unaware that around 19 percent of the retail price goes to the farmer; the other 81 percent goes toward food processing, transportation and service.
"Farmers' profitability doesn't change retail prices. And farmers' profitability isn't guaranteed by high grain prices. The same factors that are lifting grain prices are lifting production costs," said Aure-Flynn. "So, yes, the farm price index is at 162 percent of what it was 1990-1992, but at the same time the price index measuring what farmers pay -- for services, farm wages -- is 189 percent of base." (This information begins at 4:08 in the podcast.)
Moving forward, any changes in the factors supporting higher input costs and higher prices -- such as change in demand, exchange rates, or ethanol policies -- could change the agricultural industry. Additionally, the food versus fuel debate will play a key role in the upcoming U.S. Presidential election, with the policies of both candidates on areas such as biofuels, trade and energy being closely watched not just by the agricultural industry but by food buying consumers.
"The future in this debate, with the new administration coming in, will be like a ride on a bi-plane, it will be bumpy, but fascinating as well," said Whitehead. (This information begins at 9:26 in the podcast.)
Note to reporters and editors: See release, "Rabobank Predicts Strong Growth in Worldwide Food and Agriculture Industry," which discusses similar subjects. Information is available online at www.rabobankamerica.com/news
The premier bank to the global food and agriculture industry, Rabobank is a global financial services leader providing institutional and retail banking and agricultural finance solutions in key markets around the world. From its century-old roots in the Netherlands, Rabobank has grown into one of the 25 largest banks worldwide, with over $800 billion in total assets and operations in over 35 countries. Rabobank is the only private bank in the world with a triple A credit rating from both Standard & Poor's and Moody's, and is ranked among the world's safest banks. In the Americas, Rabobank (www.RabobankAmerica.com) is a leading financial partner to the entire American food and agribusiness industry and is a specialist in sophisticated, customer-driven solutions in the Global Financial Markets and Corporate Finance arenas. Rabobank also provides retail and commercial banking services in California; leasing; and real estate lending, operating loans, input financing and crop insurance to American agricultural producers, input suppliers and agricultural manufacturers.
SOURCE Rabobank
-0- 08/20/2008
/CONTACT: Heather McElrath of Rabobank, +1-212-309-5181, heather.mcelrath@rabobank.com/
/Web site: http://www.rabobank.com
http://www.RabobankAmerica.com /
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