Demand for ethanol and other biofuels is a "significant contributor" to soaring food prices around the world, World Bank President Robert Zoellick says. Droughts, financial market speculators and increased demand for food have also helped create "a perfect storm" that has boosted those prices, he says.
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World Bank Chief: Biofuels Boosting Food Prices

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World Bank Chief: Biofuels Boosting Food Prices

World Bank Chief: Biofuels Boosting Food Prices

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It's MORNING EDITION from NPR News. Good morning. I'm Steve Inskeep.

The high cost of food long ago seized the attention of some of the world's poorest people. Now the problem is forcing its way onto the agendas of world financial leaders. Yesterday Robert Zoellick, the president of the World Bank, met reporters in Washington. He suddenly reached under the table and pulled up a white paper bag.

Mr. ROBERT ZOELLICK (President, World Bank): In Bangladesh, a two kilogram bag of rice, like this, now consumes about half of the daily income of a poor family.

INSKEEP: Yesterday on this program, Robert Zeigler of the International Rice Research Institute noted the connection between high food prices and riots in places like Haiti.

Mr. ROBERT ZEIGLER (International Rice Research Institute): We need to recognize that the potential disruptive power of food sources is enormous.

INSKEEP: So this morning we'll hear from the man who held up that rice bag in Washington yesterday. Robert Zoellick heads an institution that is supposed to reduce poverty around the world. Now the World Bank president is concerned that soaring food prices could cancel out much of the bank's work.

Mr. ZOELLICK: I think you have a perfect storm of things coming together. You have high energy prices. You have the increase in demand from some of the developing countries that are having, as the Indian commerce minister said to me, going from one meal a day to two meals a day for 300 million people increases demand a lot.

You have some of those countries moving to a different diet. So more meats require more grains. You have the biofuels expansion, which is a big source of demand. You've also had some particular climatic conditions. You had droughts in Australia and some places in central and eastern Europe that have limited production.

And all this together has led to a real reduction in food stocks. And then you would also combine the effect that commodity markets, like food and energy, are linked to financial markets. So people are also putting money into the assumptions about whether prices will go up or down.

Those combinations of events have led to an emergency situation for many people.

INSKEEP: When you say people in the financial markets are putting money into whether prices will go up or down, are you saying speculators are driving up the price of rice or corn?

Mr. ZOELLICK: They're investing in that just like they would invest in debt or equity, but commodities are part of the financial market system. So this is the importance of the low food stocks. If you have low food stocks, just as if you have limits in the ability to expand oil production, then people think the bias is on the upward side.

In other words, if something happens to lower prices, it'll move a little bit, but if something happens, like another drought or whether conditions to move prices up, you've got no space in the system to expand production. In the meantime, we have to get through this emergency situation.

INSKEEP: But are speculators driving up commodity prices, food prices right now?

Mr. ZOELLICK: Well, they're part of the overall investment pattern along with biofuels and other uses.

INSKEEP: Do you wonder if there is a bubble in food prices or you think…

Mr. ZOELLICK: I don't think it's…

INSKEEP: …this is a permanent condition?

Mr. ZOELLICK: Well, we released a report that suggested that food prices are likely to stay high or even get higher over the next couple of years. They may come down if you get a little bit of a supply response, but at least it's our forecast and these have all the uncertainties that forecasts have.

INSKEEP: That report by your staff reaches some surprisingly simple conclusions, simpler perhaps than you suggested as to why food prices are high. The report says, okay, there's been some drought but there's also been good crops in other parts of the world. That's basically a wash.

They said, okay, there's been some higher energy prices; that's affected food to some degree. But it seems to be saying in that report that the fundamental problem is a lot of crops going to biofuels.

Mr. ZOELLICK: Well, it's one of a series of elements. When you look at economics you have to look at the combination of demand and they do talk about the energy prices and some of the other effects.

INSKEEP: But that's small.

Mr. ZOELLICK: But the biofuels…

INSKEEP: Biofuels seems to be the major issue here.

Mr. ZOELLICK: Well, biofuels is no doubt a significant contributor. It is clearly the case that programs in Europe and the United States that have increased biofuel production have contributed to the added demand for food.

INSKEEP: I mean, the report seem to suggest that's the main issue here. We wouldn't even be talking about this if it were not for biofuels.

Mr. ZOELLICK: I think I answered your question.

INSKEEP: When you look at so-called first generation biofuels, which I'll define as biofuels made out of stuff that people could also eat, like corn, are they doing more harm than good at this point in the world?

Mr. ZOELLICK: Well, I think this depends on what you evaluate. For example, the energy security benefits, some of the environmental benefits. You've had biofuels based on corn in the United States that have partly tried to relate to some of the Clean Air Acts. But I do believe that one needs to recognize if you increase the demand for biofuels you have to recognize the effect on overall price levels.

And so if one does have dangers, as we're having in parts of the world - in Haiti and Africa - I hope it will increase the propensity of the U.S. and Europeans and Japanese and others to support some of those emergency needs.

INSKEEP: Mr. Zoellick, thanks for your time.

Mr. ZOELLICK: You bet.

INSKEEP: Next week on MORNING EDITION, NPR correspondents will take us to China, Egypt, Britain and Haiti for a closer look at the causes and consequences of the global food crisis.

And you can read the World Bank's report on higher food prices at

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