Food Price Study Finds Oil Drives Food Prices
Posted: July 23, 2008
One of the findings in a Farm Foundation study being released today is that oil is ultimately behind the increase in corn prices.
As Purdue agricultural economist Wally Tyner explains it, “Higher oil price means higher gasoline price, higher gasoline price means more demand for ethanol because ethanol is a substitute for gasoline, and the higher ethanol demand means more demand for corn and more demand for corn means higher corn prices.” The result has been that the price of crude oil and the price of corn are now linked, Tyner says, which is a revolution for global agriculture.
“What’s Driving Food Prices?” was written by Tyner and two other Purdue University economists. Another interesting finding in the report is that China and India have less of an impact on food prices than many believe. “While many studies focus attention on China and India, neither country is a major trader of most agricultural commodities. However, China’s rapidly growing oil imports have
had an indirect effect on food prices by impacting world prices for crude oil.”
“We commissioned this report to provide a comprehensive, objective assessment of the forces driving food prices,” said Farm Foundation president Wallace Conklin. “It is the intent of Farm Foundation that the information will help all stakeholders meet the challenge to address one of the most critical public policy issues facing the world today.”