This document discusses the relationship between biofuel policies, agricultural prices, and food security. It makes three key points: 1) There is not expected to be a strong direct link between biofuel demand and consumer price indices (CPI), as prices are affected by many factors like weather, policies, and market behaviors. 2) The impact of biofuel policies on both food CPI and energy CPI must be considered, as increases in either can negatively affect the poor. The design of biofuel policies can help determine their effects on consumers and taxpayers. 3) Biofuel policies may increase both the level and volatility of agricultural prices in the long run by shifting supply structures and linking commodity markets more closely to

1. Biofuels, Biofuel Policies and
Agricultural Prices:
Consequences on Food Security
David Laborde – IFPRI – d.laborde@cigar.org

2. Food CPI: International
Comparisons
100
Y2000 Y2001 Y2002 Y2003 Y2004 Y2005 Y2006 Y2007 Y2008 Y2009 Y2010 Y2011 Y2012 Y2013
Côte D'Ivoire Bénin Burkina Mali
Niger Sénégal United States OECD - Total
Brazil China (People s Republic of) Indonesia Russia
South Africa
500

3. Setting the stage
• No one should expect a strong link between biofuel demand and consumer
CPI
• Price level and volatility affected by different drivers (weather, policies,
endogenous market behaviors)
• Role of the value chain: from farm gate to producers (domestic and
international price transmissions, price behavior along the value chains)
• % of food in CPI, % of primary products in Food basket, % of products
impacted by biofuels directly (e.g. vegetable oils) or indirectly (e.g. meat)
• Role of real income in food security
• But both Food CPI and Energy CPIs matter for the poor (1), when looking at
the impact of biofuel policies (2): role of biofuel designs (for consumers,
taxpayers)

4. Understanding Price Transmission
Illustration US case
0.8
0.85
0.9
0.95
1
1.05
1.1
1.15
CPI: Whole grain bread, rolls, rice,
pasta, cereal
Los Angeles Chicago Washington DC
USDA ERS
http://www.ers.usda.gov/amber-waves/2014-
may/food-price-transmissions-from-farm-to-
retail.aspx#.VG0FjvnF98E

5. International Price Transmission:
a regional dimension
East Africa
Page 5
Adapted from S. Zorya
Source: RATIN and FAO GIEWS.

6. Beyond Price Level: Assessing price volatility
http://www.foodsecurityportal.org/policy-analysis-tools/excessive-food-price-variability-early-warning-system
Price Volatility has also an effect on consumers!

7. Biofuels and Price stability
• What really matters: what is the marginal role of biofuel and biofuels
policies on price level an stability?
• A demand effect:
– Short term: “Surprise effect”  role on inventories. Should disappear. But may
set the stage for other policy responses (e.g. export bans)
– Long term: effect Link to energy markets on the demand side ( more or less
price stability?)
– Current effect: the role of mandatory policies (G20). Agricultural demand
becomes more inelastic
• Supply response:
– Shift in supply structure (commodities x countries x practices): increased
volatility
– Feedback via energy markets (diversification)
– Investments: Specialized vs dedicated

8. Illustration:
Household level consequences of the EU BIOFUEL policies in PAKISTAN
-0.60%
-0.50%
-0.40%
-0.30%
-0.20%
-0.10%
0.00%
0.10%
0.20%
0 200 400 600 800 1000 1200
RealIncomeImpactonthe
Household
Initial Income per Capita of the Household
LABORDE 2009, MIRAGE-
HH and BIOF
SIMULATIONS