Media Global Economy 2012.08.22
1. Why are international grain prices going up?
Severe drought has hit around 60% of the United States landmass, seriously damaging crops. The US Department of Agriculture has announced that the country is suffering from the poorest harvest in 24 years dating back to 1988. This has boosted the international prices of corn and soy beans to their highest historical levels.
2. The global food crisis in 2008 occurred as a result of the rise in international grain prices. Could it happen again?
In 2008 international grain prices tripled from pre-crisis levels. This had nothing to do with the production of grain, however, which was stable at that time. There were a number of factors considered to have caused prices to surge in 2008. I would think that a major cause was the change in corn supply, owing to the fact that corn had previously been consumed solely as food or feed but then began to be used as a raw material for ethanol production as an alternative to gasoline. While burning gasoline emits global-warming gases, plant-derived fuel is considered to be carbon-neutral, the burning of which does not emit any additional greenhouse gases other than the carbon dioxide which plants absorb from the atmosphere through photosynthesis. For this reason, governments of various countries have promoted the production of ethanol from biomass feedstock. The US government has offered the industry a variety of subsidies, including a grant for constructing ethanol production facilities. Plant-derived fuel was seen to accomplish the dual purpose of mitigating global warming and increasing farm income. In 2008, soaring crude oil prices also provided favorable conditions for biomass-ethanol production, for which a large volume of corn was allocated. In sum, the new demand significantly pushed up the price of corn.....
(This article was translated from the Japanese transcript of Mr. Yamashita's speech in the "Business Prospect" session of the radio program "First in the Morning News" broadcast by NHK Radio Channel1 on July 24, 2012.)