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IMFSurvey Magazine: IMF Research

Food and Biofuels: The Price of Success

Over the past two years corn prices have roughly doubled worldwide, although they have fallen slightly in recent months (photo: Glow Images)

COMMODITY PRICES

Food and Biofuels: The Price of Success

By Simon Johnson
IMF Research Department

December 3, 2007

In a column in the December 2007 edition of Finance & Development magazine, IMF Chief Economist Simon Johnson looks at how the adoption of biofuels is driving up world food prices. He suggests that rich countries could help limit the rise, which is hurting the poor in low-income countries the most, by removing ethanol subsidies and cutting high tariffs.

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Australian wheat, Chinese pork, U.S. corn. What do these three specific goods have to do with macroeconomics? Unfortunately, right now, a great deal, and in ways that are globally interconnected. Over the past 12 months, the world has experienced a substantial inflationary shock in the form of higher food prices. This shock doesn't necessarily translate into higher sustained inflation; monetary policy in most countries appears to be responding appropriately. But it will have adverse effects, particularly on relatively poor urban residents in low-income countries. Continue story here.


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