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Global Economics

Biofuel Boom Driving Up Pasta Prices

In the latest biofuels-related hike, a poor wheat harvest amid rising demand from fuel makers is expected to boost pasta prices 20%

Mamma mia! The price of a plate of pasta is expected to rise 20 percent this summer as a bad wheat harvest and increasing competition from biofuel manufacturers send the price of delicate, delicious durum wheat skyrocketing.

Italian consumers, accustomed to paying 70 euro cents ($1) for a pack of the good stuff -- half the cost of a cup of coffee -- will be the first to feel the pinch, but the Italian Pasta Manufacturer's Association will be passing the costs on to export customers as well. "Pasta producers have tried, with growing difficulty that has now become no longer sustainable, to absorb the high cost differentials," the Association announced last week. "But this situation cannot go on any longer in the face of the dynamics of the durum wheat market."

Italy's famous macaroni makers are the latest to find themselves at the wrong end of competition from the booming biofuel industry, which converts corn, sugar, wheat and other crops to fuel and energy. As biofuels catch on, governments are increasing subsidies. Farmers are finding themselves in an unfamiliar position: a seller's market. Courted by food manufacturers and energy firms alike, they're raising prices and shifting production to crops that can be used to make ethanol for cars, heat homes or generate electricity.

Cooler heads have pointed out that the biofuel boom may not be singlehandedly responsible for this year's shortage. Mother Nature herself may shoulder some of the responsibility. Unusually hot weather in grain producing countries like the US, Canada, Australia, Syria and Morocco has resulted in unusually low crop yields. Europe, on the other hand, has been drenched by rain, damaging delicate durum wheat crops. The weather's one-two punch means the 2007 harvest is going to be at least 3 million tons short.

But hungry pasta fans keep eating, bringing the world's stocks to their lowest levels in a decade. European producers are in particularly dire straits. Global prices for durum wheat have spiked, to more than $350 a ton. Wheat producers in France, where wheat stocks are at their lowest levels in 20 years, said that wheat prices there have gone up 40 percent in a matter of weeks. Since pasta has only two ingredients -- durum wheat and water -- pasta producers are in a bind. "Pasta prices are going up because the price of the raw material is increasing," Cristiano Laurenza, food law policy expert at the Italian Pasta Manufacturers' Association, told SPIEGEL ONLINE.

The pasta crisis is the latest in what may soon be a regular rise in global prices. In January, Mexican consumers were hit with a tortilla crisis, as grain prices doubled and tripled the cost of tortillas and caused riots in some places. Beer prices in Germany ticked upwards in May partially due to the increased production of biofuels.

The situation isn't likely to turn around any time soon. In a report released last week by the UN Food and Agriculture Organization, the report's authors pointed to biofuels as one of a host of factors (including population growth and steadily growing economies in the developing world) driving global consumption to outstrip grain production for the next 10 years.

"Production of renewable energy, in general, and biofuels in particular, has risen to the top of policy agendas in many countries and has become a major issue for markets," the report reads. The FAO expects the use of wheat for biofuel production in Europe will increase twelvefold by 2016. The biofuel boom has a cascade effect across the dinner table: as farmers turn more and more grain into ethanol, the resulting higher grain prices mean increases in everything from the spaghetti to the meat sauce as grain used for animal feed gets more expensive.

Berlin biofuels expert Bjoern Pieprzyk, a researcher at the Campaign for Renewable Energy, says it's about time. "Prices have been too low for the last 10 years, and farming hasn't made economic sense in many places," he says. "Higher prices should encourage more production in underutilized areas" like Russia and Africa -- ultimately helping poor farmers compete.

But Pieprzyk admits that it may take a long time -- 15 years or more -- for production to catch up to demand. In the meantime, spaghetti dinners may no longer be synonymous with cheap eats in Italy or elsewhere.

Provided by Spiegel Online—Read the latest from Europe's largest newsmagazine

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