While agricultural trade policies are one factor affecting global food prices and price stability, they are not the only factor. Policies not directly related to trade can also have destabilizing effects if enacted by large countries and/or by a large number of small countries. Traditionally, focus has been put on agricultural policies and domestic support for developed countries’ farmers. Another strong example of this is the recent dramatic increase in pro-biofuels policies throughout both the developed and the developing world.
With the initial aim of reducing CO2 emissions, biofuels mandates are being enacted all around the world from the EU and the US to emerging economies such as India and Peru. This new demand for crops to be used as fuel instead of food and feed places new pressures on inelastic agricultural markets, which are characterized by temporal restrictions (meaning the time it takes to increase production), limited resources (land, water, and nutrients), and growing demand driven by demographic and income increases. In addition to magnifying the tensions between supply and demand, the rigidity of biofuel policies (mandates) contribute to the exacerbation of existing price fluctuations and magnify global price volatility.
Balancing the possible environmental and political benefits of biofuels policies with their potential negative impacts on food and feed markets will be crucial as more countries adopt and expand such mandates. IFPRI Senior Research Fellow David Laborde has extensively studied the global consequences of such policies and provides important recommendations for developing sustainable approaches and managing the potentials and pitfalls of biofuels.
To learn more, please read a brief overview
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