2012
2012

Dec 20th
Dec 20th
The Relationship between the Price of Petrol, Biofuels, and Food: a case for biofuels
NCUK IFY BEIJING AOJI 6108
Jack (Ba-12-0023)
The Relationship between the Price of Petrol, Biofuels, and Food: a case for biofuels
NCUK IFY BEIJING AOJI 6108
Jack (Ba-12-0023)

Contents
Introduction 2
Key terms 2
Graph 1 supply and demand curve 3
Graph 2 food price since 1990 3
Graph 3 wheat future US 4
Main body 4
The influence of the price of petrol on biofuels in long-term 4
Graph 4 America bio-ethanol output 5
The subsequent effect on food price 5
Graph 5 percentage of main biofuel production country 5
Table 1 Wheat production and consumption 7
Discussion 9
Evaluation 9
Graph 6 China food price 10
Conclusion 11
References 11

Introduction
This essay will reveal the relationship between price of petrol, biofuels and food; and use evidence to proof the argument that increasing price of biofuels have limited effect of food price. The effect of China in biofuels will present as follow also. Firstly, is main body and this part shows the effect of biofuels. Second part is discussion of the extent level that biofuel produced. Eventually is the prospect of biofuels in China.
According to the FAO as shown Graph 2, 3, in recent year price of food increasing rapidly, but another undesirable effect we can’t avoid that many countries are now facing food crises. One of determinant of food price is increasing supply and demand of biofuels. So it is an essential issue we face to is balance supply of biofuels and price of food.
Key terms
Biofuels: in this paper, a biofuel is a type of fuel whose energy is derived from biological carbon fixation. Biofuels include fuels derived from biomass conversion, as well as solid biomass, liquid fuels and various biogases. (Demarrias, A. . . (2009). "Political, economic and environmental impacts of biofuels)
Demand: this term demand is defined by the quantity of goods or services that will be bought at any given price over a period of time. When price change there is said to be a movement along the curve. (Shown as Graph 1, demand curve)
Price
The Demand curve
Quantity
Price
The Demand curve
Quantity
Price
Quantity
The Supply curve
Price
Quantity
The Supply curve

Graph 1 supply and demand curve
Supply: Supply is defined as the quantity of goods that sellers are prepared to sell at any given price over a period of time, a fall price will lead to a fall in quantity of supplied. (Shown as Graph 1, supply curve)
Inflation: this essay will use inflation is a general sustained rise in price level, it is considered to give rise to economic cost to society. It also can be used to describe a slowdown in the rate of growth of output of the economy.
Food commodities: food commodities is food use for sell, such as rice or beef sell in the supermarket.

Graph 2(BBC News - Q&A World food and fuel prices)

Graph 3(from BBC NEWS - Business - Market Data, bbc.co.uk)
Main body
The influence of the price of petrol on biofuels in long-term
Increase in the price of petrol is the main incentives for extend biofuel production. Simultaneously price of corn and oilseeds are increase by extension of biofuel demand. In general, a barrel of crude oil can produces 42 gallons of petrol, when crude oil rise $10 /barrel, the marginal revenue will increase $0.24per gallon. Ethanol price is 2/3 of the gasoline, so for every $10 rise in crude oil, the price of ethanol can increase $ 0.16 per gallon. While per bushel corn can produce 2.8 gallon ethanol, so if price of crude oil increase $10, price of corn that use for produce ethanol can rise $0.45/bushel. In this case, 70% of global increased corn is used to produce biofuel in 2004 to 2007, the capacity and output of corn have a dramatically increase in America which dominate 1/3 of world corn production and 2/3 of world expert. Increasing demand of corn in America pushed the price of world corn into a higher level. (Zhang yw, 2008)

Graph 4(FAO)
The subsequent effect on food price
Global production of biofuel has a rapid development
Graph 5(BBC News - Q&A- World food and fuel prices)
Graph 5(BBC News - Q&A- World food and fuel prices)
Due to rising petrol prices in recent years, some preferential policy which in taxation and finance has been published in some countries to accelerate development of biofuels. Fuel ethanol production in the United States and Brazil have a huge proportion that occupy entire biofuels for more than 85%, Production in the U.S. has 43% (mainly corn-based ethanol), Brazil has 32% (mainly the sugarcane ethanol conversion), the EU has 13% (mainly rapeseed oil). (Zhang yw, 2008)
2007 Global fuel ethanol production of 59.2 billion litters, which is 3.25 times that of 2000. Production in the United States and Brazil accounted for 76% of the world. U.S. production of 25.2 billion litters, which consuming 2.12 billion bushels of corn, accounting for 18.9% of the total corn consumption (domestic consumption and exports); according to the U.S. Department of Agriculture estimated the 2007 annual production will be about 32 billion bushels of corn for the production of fuel ethanol, U.S. corn prices from $ 2.3 in 2000 / bushel (about 91 U.S. dollars / ton) rose $ 7 / bushel (about 304 U.S. dollars / ton) , amount of increase are 334% of previous year . (Zhang yw, 2008)
In comparison with the corn, sugar prices were relatively stable
Unlike America use corn to produce ethanol, Brazil use sugarcane. In 2007, half of the sugarcane is converted into ethanol in Brazil. In 2012, more than 60% of the sugarcane will be used for fuel ethanol production, an increase of 10% or more than that amount in 2007, but still below the peak of 74% in 1990. (Zhang yw, 2008) Sugar is not a main food commodity in worldwide, but as a condiment for food, sugar’ effect is weak.
Price of ethanol for fuel have weak affect to that of wheat
In the raw material of ethanol for fuels, wheat's share of the component is limited. The main producing countries are EU and Canada, in 2007, the two countries consumed 1.84 million tons of wheat for the production of fuel ethanol; about 1.4% of the total output of the two countries. Is expected that by 2012, the number of fuel ethanol from wheat in the EU region will slow growth. (Zhang yw, 2008) As for main grain for food, wheat have not being use for biofuel production in large-scale, the effect of wheat on biofuel is weak also.

Other main determinants of world food price 1. World economy situation
The world economy situation has huge influence on food price. The dramatically fluctuation of international food prices in 2011 mainly due to the outbreak of the debt crisis and the sovereign debt crisis in the United States and affect international food prices through two ways: initially, a serious impact on market expectations, secondly, crisis led to decline in demand for food.(shown as Graph 1) 2. World food demand and supply
International food demand is gradually rising, but the supply outlook is not optimistic, supply of general food are tight. Bad climate and trade barriers are likely result in ill anticipation, thus push food price into higher position, in addition, emerging market economies still maintain a rapid pace of development, but supply of food cannot follow behind. (Table 1)

Table 1（BBC News - Q&A- World food and fuel prices） 3. Speculation
Capital of the grain market speculation is another reason, World Bank officials also pointed out that speculators are agents of food price volatility. FAO Director-General Diouf recently called on the international community to take regulatory measures to curb speculation behind rising food prices. (news.cn) 4. Inflation
The U.S. Department of Agriculture, an agricultural economist Annette pointed out, inflation is more often than not triggered by a rising commodity prices, but at the same time different circumstances triggered. However, some developing countries are facing the danger of food prices lead to inflation. In the Philippines, the proportion of food in the consumer price index up to 50%; this proportion was 35% in Thailand. In China, Shanghai's citizens said that the green vegetables prices have more than doubled from a year ago, meat and vegetable oil prices have risen.(Bush t, 2008, p.6)
The effect of biofuel to food price is limited in short-term
In the United States, generally corn as the raw material; in Brazil, sugar cane as raw material; cassava as bio-ethanol feedstock situation is relatively common. So except those crop, wheat and rice are two of largest food crop, but wheat and rice are not main crop for biofuel production. In the short run, biofuels cannot influence world food price enormously. On the other hand, the feed of cattle is diversified, which combine with many kinds of grain, so the effect of price of meat also limited in short-term.
Discussion
Biofuel is a viable alternative to fossil fuels as composite goods
According to expection of IEA, globel suply of fuel is 98Mb/d, but biofuel only count 4%(BBC NEWS). But mixture oil which is genernally 10% acohol mixed is an other way to reduce the consumption of fossil fuel. As everone knows, fossil fuel is unrenewable resources and produce significant pollution. More and more evidence have been found that, fossil fuel that include coal, petrol, gas lead to globel warming, because of carbon dixide fossil fuel poduced. Expect of mixture fuel can alter the stuiation, govenrment and organnization have to legislation or planning to build a standard for mixture fuel. According to marketresearchworld.net “In terms of technology development, second generation biofuels have been developed although they are not yet commercially viable”measure that the techological innovation is still develop yet.
In the long term, biofuel is not a key to solve economic and environmental issues that fossil fuel associated with, so incresing producion of biofuel can’t instead of fossil fuel. Reduce demand of fossil fuel for energy to retain globel economic growth is necessary.
Evaluation
1. The recent situation of China’s wheat
According to report of U.S. Department of Agriculture, the stock of China are 60 million tons in 2010 summer; production is 114.5 million tons; and the consumption is 107.25 million tons. (Chinagrain.cn)

2. Gap of China’s wheat
According to forecasts China wheat gap approximately are 13.14 million tons in 2010, on the other side, the gap of wheat occupied the 1/5 of wheat stock. (Chinagrain.cn) 3. Inflation of China commodity influence food price
Food prices rose 18.2% contrast with November 2007(Graph 6), spurring CPI inflation to jump to an 11-year high of 6.9%. Grain prices are expected to rise by more than 10% in 2008. (Bush T, 2008)
Graph 6 (Bush T,2008)

Graph 6 (Bush T,2008)

Graph 6 China main food commodity price since 2001

4. Outlook of China biofuel are undesirable
The situation cause China government adjust policy of biofuel, eventually halt the permissions production of biofuel, according to officer of Energy and Mining Faculty of the Chinese Academy of Engineering Department, except Jilin ethanol fuel cooperation, Heilongjiang Hua run ethanol cooperation and other two cooperation(news.cn), The government will not approve new project. But China will continue the research of biofuels technology.
Conclusion
To sum up, as Mr Collins said, increasing oil price will lead to rise in biofuels, the price of corn, sugarcane and other raw material for biofuels production will increasing in long term. But the effect of biofuel are limited, some of other reason such as situation of world economy in future, supply and demand and speculation have the significant effect to food price. Another of reason why biofuels are not main long term effect for food price is that adjustment in government and market, like China did. This situation which computation of fossil rapidly increase in recent year touched a warning alarm that we should exploit alternative energy such as solar energy.
References
BBC NEWS,2012,Q&A: World food and fuel prices,UK http://www.bbc.co.uk/news/business-18857765 Bush T,et al(2008),implication of rising food prices in china,Merrill Lynch,us
Zhangyiwei, 2008, Biofuels pulling a long-term climb in grain PRICES, Securities Daily, China http://www.in-en.com/article/html/energy_0725072580225851.html Consumers Team(2010).,Q&A: Biofuel production And Its Economic And Environmental Implications,Markrt Research World,US
http://www.marketresearchworld.net/index.php?option=com_content&task=view&id=3312&Itemid=77