IMF Survey: Food and Biofuels: The Price of Success

IMF News, December 3, 2007

Source details

Author: Simon Johnson, IMF Research Department.
Publication date: December 3, 2007.
Core argument: The adoption of biofuels is driving up world food prices, with the rise hurting the poor in low-income countries the most.
Contextual note from the source: "Over the past 12 months, the world has experienced a substantial inflationary shock in the form of higher food prices."

"The adoption of biofuels is driving up world food prices."
The rise in food prices is "hurting the poor in low-income countries the most."
"Over the past two years corn prices have roughly doubled worldwide, although they have fallen slightly in recent months."
The food-price shock "doesn't necessarily translate into higher sustained inflation; monetary policy in most countries appears to be responding appropriately."
Specific examples cited: Australian wheat, Chinese pork, U.S. corn — used to illustrate global interconnectedness of food-price movements.

Recommendation directed at rich countries: "removing ethanol subsidies and cutting high tariffs" to help limit the rise in food prices.
Implicit policy implication: Actions in rich countries (subsidies and trade barriers) can materially affect global food prices and welfare in low-income countries.

Primary adverse effects are on "relatively poor urban residents in low-income countries."
The market shock is described as an inflationary shock in food prices over the past 12 months, with distributional consequences across countries.

Food-price increases are framed as a shock that "doesn't necessarily translate into higher sustained inflation."
Corn prices have shown recent volatility: "roughly doubled" over two years but "have fallen slightly in recent months."

IMF Survey: Food and Biofuels: The Price of Success — Simon Johnson, IMF Research, December 3, 2007.