Sunday, March 04, 2007

Biofuels may push up beer prices

I was giving a presentation on the CAP during this week and I was asked if ending it would threaten food security in Europe. My reply was that no one was advocating dismantling the CAP overnight, so any adjustments would be phased in, but that the real challenge to food security came from the rapid expansion of growing crops as biofuels. A structural shift is going on in farm markets.

An illustration of this is what is happening to the price of barley which is used for beer, whisky and animal feed. Strong demand for biofuel feedstocks is encouraging farmers to plant these crops instead of grains such as barley. The price of barley has soared in the past week. Futures prices for European malting barley have risen more than €230 a tonne since last May and by a third on the Winnipeg Commodity Exchange over the same period. Admittedly, other factors such as the Australian drought and heavy rains in Europe have affected barley prices.

The US Departent of Agriculture estimates that global barley production will reach 138m tonnes this year, level with 2006, but 10 per cent down on 2005. Global demand has risen two per cent, the fourth year in the last five in which demand has exceeded supply. Global stockpiles have shrunk by a third in two years. The US, which in the 1980s was a leading exporter of barley, is now a net importer.

One consequence could be a long-term rise in the price of beer. Barley and hops account for 7-8 per cent of brewing costs.

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