Biofuels, Climate Change Driving Food Price Surges 11 Oct 2011

A new report on global hunger pinpoints factors at the heart of spikes in food prices it says are exacerbating the unfolding food crisis in the Horn of Africa. Released ahead of World Food Day on Oct. 16, the report calls for action to control price volatility in the global food market and protect the world’s poorest from the scourge of famine.

The Global Hunger Index points to climate change and growing demand for biofuels as the causes of price increases in food. The report points to an enduring period of high and increasingly volatile prices for food, which it says has economic, social and political impacts. According to the report, 26 countries face hunger crises.

The crisis begins with an ongoing boom in biofuels. The United States and European Union are subsidizing biofuel production as an alternative to crude oil. This is encouraging farmers to shift their production to biofuel crops that never make it to the dinner table. Torero said that when more food crops go to biofuel production in the United States, it affects the amount of crops that can be exported to other countries. This has an impact because the United States accounts for about 50 percent of all global corn exports.

Furthermore, extreme weather events such as droughts and floods, which may increase due to even very small changes in the global climate, have the potential to decimate crop yields, further raising food prices. The poor are hard-hit by food price spikes and volatility, especially in low-income countries where families spend a majority of their income on food, the report stresses.

The GHI presents several policy recommendations to address food price volatility and increases by “revising biofuel policies and adapting to and mitigating climate change”. It also urges countries to improve social services and invest in “sustainable, small-scale agriculture”. They are encouraging governments to reinvest in agriculture that feeds local populations.

*By Amanda Wilson with additional reporting by Kanya D’Almeida.

IB EconomicsBiofuels and Climate Change Commentary Pre-Outline

Your assignment is to write a commentary of 650-750 words. You must: Use correct economic terminology, definitions, and diagrams Analyze the links between the article and economic theory Evaluate current events from the point of view of an economist

1. Read the article, “Biofuels, Climate Change Driving Food Price Surges”.

2. As you read the article, highlight any key economic terms. Brainstorm other related economic ideas and diagrams. Look in your notes.

3. Write the first paragraph of your commentary by summarizing the article in 3-5 sentences. End with the main economic question you will answer in your commentary.

4. Identify the terms that are most critical to your idea. Find complete definitions of these terms on www.bized.ac.uk/glossary/index.htm or elsewhere.

5. Analyze the article using the lens of supply and demand. What determinants are impacting the global food market? Use supply and demand analysis to explain the changes. Be sure to include fully-labeled diagrams.

6. Evaluation: What are the economic implications for related markets? What are the costs and benefits to different stakeholders? What is your economic assessment of GHI’s policy recommendations? Should the government get involved? Why or why not? Prioritize the causes, impacts, or solutions.

7. Provide citations for any definitions, diagrams, or quotes you use

This commentary is due Monday, March 5

Criterion A: Diagrams This criterion assesses your ability to construct and use diagrams.

1 Relevant diagrams are included but not explained, or the explanations are incorrect.2 Relevant, accurate and correctly labeled diagrams are included, with a limited

explanation.3 Relevant, accurate and correctly labeled diagrams are included, with a full

explanation.

Did you use at least one fully-labeled supply and demand diagram? Clear title and axes labeled with P and Q Arrows showing direction of shift and changes in P and Q Full explanations of what the diagram shows and why it is important to your analysis Were your diagrams used in context? or just placed at the end of your

commentary…

Criterion B: TerminologyThis criterion assesses your ability to use appropriate economic terminology.

1 Terminology relevant to the article is included in the commentary.Some key terms are defined, or they are defined incorrectly.

2 Terminology relevant to the article is used appropriately throughout the commentary.All key terms are defined correctly.

Did you correctly use and define these kinds of terms? demand competitive supply equilibrium incentive

opportunity cost revenue scarcity subsidy

supply supply shock tradeoff

Criterion C: ApplicationThis criterion assesses your ability to recognize, understand and apply economic information in the context of the article.

1 Relevant economic concepts and/or theories are applied to the article.2 Relevant economic concepts and/or theories are applied to the article appropriately

throughout the commentary.

Did you apply these economic ideas to the topic? supply and demand analysis competitive supply or demand for

corn

supply shock [drought, floods] increasing population impact of subsidies on biofuels

Criterion D: AnalysisThis criterion assesses your ability to explain and develop appropriate economic theories and/or concepts in the context of the article. It measures the quality of your arguments, the logical presentation of your discourse, and the consistency of your commentary.

1 There is limited economic analysis relating to the article.2 There is appropriate economic analysis relating to the article.3 There is effective economic analysis relating to the article.

Did you sufficiently explain these concepts? Supply for corn shifts left due to climate change [drought, floods]: P increase, Q

decrease Demand for corn shifts right due to biofuels and population: P increase, Q increase Price definitely increases, but quantity is indeterminate Corn [or farmland] used for biofuels is in competitive supply with corn used for food effective explanations of supply and demand diagrams Referring to specific information or quotes from the article are recommended for

Level 3

Criterion E: EvaluationThis criterion assesses your ability to synthesize your analysis in order to make judgments that are supported by reasoned arguments.

1 Judgments are made that are unsupported, or supported by incorrect reasoning.2 Judgments are made that are supported by limited reasoning.3 Judgments are made that are supported by appropriate reasoning.4 Judgments are made that are supported by effective and balanced reasoning.

look at both sides of an issue consider short run versus long run consequences examine the impact on different stakeholders / groups discuss advantages and disadvantages decide what is the most important consequence, impact, advantage, disadvantage,

and/or solution.

Did you consider:

Who will benefit from this situation? Who will lose? What are the costs and benefits of GHI’s policy recommendations? Are they feasible? What solutions do you offer? What are their costs and benefits? What are the short- and long-run implications of specific policies or solutions? What could be the impact of price floors or ceilings? What issues of sustainability arise? Referring to specific information or quotes from the article are recommended for

Level 3/4