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Does biofuel production affect food prices? Priscila Amorim [via e-mail]

daniel buenoThat happens in the United States, where ethanol is made from corn. Between 2008 and 2009, ethanol production increased substantially, consuming a large part of the harvest and increasing the price of corn. The effect is important because in the US corn is a key staple: it is used for the production of chicken and pig feed, cooking oil and even sugar. In 2009, a bushel of corn cost US$4. Currently the price is around US$6 – the increase is partly due to demand for ethanol production. Today, a little over 100 million tons, roughly one third of the harvest, is used for biofuel production. In Brazil, ethanol is made from sugarcane, which has higher yields than corn: one hectare can yield 10 tons of corn but 90 tons of sugarcane. Thus, less land is required for ethanol production. If demand increases, perhaps another 5 million hectares would be needed, which is quite a small area relative to Brazil’s size. Considering just underutilized pastures, nearly 100 million hectares are available for sugarcane cultivation. Furthermore, the real price of food, in São Paulo, has decreased from 1975 to 2011, due mostly to higher productivity.

José Roberto Mendonça de Barros
Economist, MB Associados