Bad Biofuel Policy Boosts Asian Inflation

The US decision to divert food crops for motor-fuel is proving a costly mistake – especially for Asia

What has long been predicted – that the US decision to push the use of corn to make biofuel would be a costly mistake – is starting to come true, especially for Asia, where inflation is spiking with an ugly force.
China reported on Tuesday that the increase in its Consumer Price Index hit 7.1 percent annually, driven partly by food, which accelerated to 18.2 percent annually in January from 17.7 percent in December

China’s disastrous cold spell gets the immediate blame for blocking thousands of kilometers of roadway and cutting power and transport links to tens of millions of people, collapsing more than 350,000 homes and causing direct economic losses of 111 billion yuan (US$15.5 billion) while damaging as much as 40 percent of the country’s rapeseed crop, the major source of cooking oil and animal feeds, which is driving up food prices.

Obviously there is more to Asian inflation than food prices. China’s Purchasing Price Index of raw materials rose by 8.9 percent year-on-year in January, with energy up 15.5 percent annually and power up 15.2 percent; ferrous metals rose 14.8 percent. But beyond that, world edible-oil and animal-feed prices have skyrocketed, with edible oil prices up overall by 63 percent for reasons that have nothing to do with China’s weather. Soybean oil is leading the price rise after soybean futures for May delivery on the Chicago Board of Trade rose to US$13.87 per US bushel last Friday, the highest price ever. Soybeans have surged by 85 percent alone in the past year. Palm oil is also up 71 percent annually.

Along with other culprits, including rising fuel use, the heart of the problem is the decision by the US government and other western governments to subsidize the production of ethanol and bio-diesel in an ill-considered strategy to cut greenhouse-gas emissions.

Asia Sentinel