What is the relationship between rising food prices and higher energy costs? How can we balance our needs for both affordable food and increased energy supplies?

Rising World Food Prices

In recent months, the world has been taken by surprise – shortages of some crop staples have led to soaring food prices and have the United Nations, governments, and international aid agencies asking for help in providing affordable food supplies and avoiding a hunger crisis. Among the many factors contributing to rising prices of basic food staples as well as meat, processed food, and dairy products are higher energy costs and expanded biofuels production.

How are energy prices and food prices related?

The connection between energy prices and food prices may be seen in two ways:

1. Energy used in food and animal feedstock production and distribution: As Homi Kharas of the Brookings Institution notes in the video clip, agriculture is an energy intensive industry: planting and harvesting crops requires fuel, most fertilizer is produced from natural gas, and transportation of food to markets requires significant amounts of energy. Consequently, higher energy costs are passed onto the consumer and contribute to higher food prices.
2. Biofuel production from crops (such as corn): In response to worldwide demand, biofuels are emerging as an important source of energy that is helping some countries to diversify energy supplies and potentially reduce dependence on energy imports. At the same time, this situation creates another factor at the intersection of food and energy markets -- the diversion of crops to the production of ethanol and other biofuels, particularly in the United States, Brazil, and the European Union. As crops traditionally used for food production shift to serve biofuels markets, food supplies decrease and prices consequently increase. For instance, in the United States, about 20 percent of the corn crop is used for ethanol production and it is estimated this figure will grow to 30 percent by 2010¹. Before policy makers create additional incentives to encourage greater production of ethanol and other biofuels to meet energy needs, the implications for both food and energy supplies must be carefully weighed.

As demand for both food and energy continue to pressure our agricultural resources, we will require solutions that balance the world’s needs for both affordable food and increased energy supplies.