Nestle blames biofuels for high food prices

Peter Brabeck-Letmathe of Nestle is strongly opposed to food being used for subsidised biofuels

The head of the world's largest food producer believes high prices are due to the growing of crops for biofuels.

"The time of cheap food prices is over," says Nestle chairman Peter Brabeck-Letmathe.

He is highly critical of the rise in the production of bio-diesel, saying this puts pressure on food supplies by using land and water that would otherwise be used to grow crops for human or animal consumption.

"If no food was used for fuel, the prices would come down again - that is very clear," he says.

"We are now in a new world with a completely different level of food prices because of the direct link with fuel," he says.

He says biofuels are only affordable because of the high subsidies they receive, particularly in the US.

"It is absolutely unacceptable and cannot be justified," he says.

"There is one demand that I have, and that is not to use food for fuel."

Water crisis

Mr Brabeck-Letmathe says politicians have not understood that the food market and the oil market are the same - they are both calorific markets.

"The only difference is that with the food market you need 2,500 calories per person per day, whereas in the energy market you need 50,000 calories per person," he says.

When politicians said they wanted to replace 20% of fossil fuels with biofuels, it meant increasing the production of crops threefold, according to Mr Brabeck-Letmathe.

And most of the world's sugar production now goes into making biofuels, he says.

Agriculture uses 70% of world's water consumption and the public must be made aware of the inefficient usage of this precious resource, Mr Brabeck-Letmathe adds.

"It takes about 4,600 litres of water to produce one litre of pure ethanol if it comes from sugar, and it takes 1,900 litres of water if it comes from palm oil," he says.

"This is not a crisis which might arise in 100 years, it is something which is already here today."

Other factors

Paul Conway, chairman of US food conglomerate Cargill, also strongly opposes mandates for biofuels, but says there are other reasons for high food prices.

"The bigger picture globally is increased urbanisation, which leads to more food being consumed," he says.

A severe drought in the US has led to many farmers having to abandon their 2012 harvest

He also points to the hundreds of millions of people being lifted out of poverty in the decade leading up to the financial crisis, which led to an improved diet and more meat being consumed.

"There has also been an explosion in biofuel use and the financialisation of the agricultural markets," he says.

He says those factors, along with a 20% decline in investment in agriculture, has contributed to higher food prices.

Temporary blip

During recent months there has been a drop in some prices, but this will not last, says Mr Conway.

"In the last five months we lost roughly 100 million tonnes of crops, largely in South America and most recently in the US grain belt, which has been dealing with 100 degree temperatures," he says.

"So we have seen maize prices go up 40% and soya bean prices rise by 25% - so it is not a time to relax.

"Ultimately most of those crops are converted into other things, such as sweeteners, particularly in the US, or into animal feed, which later results in higher meat prices.

Food security

"We saw decade after decade of declining food prices in real terms, and if that gets to a level where there is not a sufficient return for farmers then you won't get the increase in production to feed the increase in demand.

"There needs to be a fair price both for farmers as well as consumers. It is the judgement of Solomon as to what that price is. Our view is let the market decide."

Short-term supply shocks have a major impact on price.

"We have seen occasions in the last few years where a government's reaction to that has been to do things like introduce export bans, or cap maximum prices," Mr Conway says.

"It is understandable they are doing that to protect essentially the urban poor, to keep prices down."

He notes that such actions are actually harmful because it means that farmers receive lower prices and people are deterred from investing in food production.

With 60% of the world's unexploited arable land in Africa, Mr Conway says it needs to become more productive.

"Brazil is now a powerhouse. What has happened in Brazil in the last 20 years needs to be replicated in Africa.

"Farmers need clarity of tenure, better infrastructure, better markets for their produce - and when you provide that sort of environment, you will see an increase in production."

Mr Conway concludes with an African proverb about long-term investment.

"Live as if you will die tomorrow - plant as if you will live forever."