One of the topics that comes up when biodiesel is mentioned is if it’s the reason that food prices are escalating worldwide. The (incorrect) reasoning is that biodiesel is made from soybeans or similar sources of vegetable oil that are also used for food, and the competing demand drives prices up.

Biodiesel is not the driver of food prices that it is sometimes accused of being.

I’d like to mention an often overlooked fact when it comes to soy, which is often used to produce biodiesel. 80 percent of the soy crushed continues on to be part of the food supply, we take only the oil, which is only about 20 percent of the total! That is an interesting fact.

Another point is that biodiesel and ethanol are very different things. News stories may often lump “biofuels” together as one, but that is an inaccurate grouping. While both are made from vegetable oil, ethanol in the U.S. is made from corn. Biodiesel is not made from corn. Ethanol comprises 90% of all biofuels in the US – biodiesel is only 10%.

Saying biodiesel is the main impact on food prices is like insisting that demand for gas in Rhode Island is the main reason worldwide fuel prices are skyrocketing. Yes, Rhode Island does have an effect as a small part of the overall demand, but perhaps California or China has a bit more impact. Biodiesel is a source of demand, but it is not a primary cause of food price increases. So then you ask, what are the primary causes?

(1) Rising energy costs. You may have noticed gas costs more. It is more expensive now to grow, harvest, transport and package crops with fertilizer and fuel prices rising. These increased costs are passed to the consumer.

(2) Demand in the food markets. China and India aren’t just hungry, their recent elevation in economic status has driven an interest for better food – they eat more grains and meats. Demand causes prices to increase – its Economics 101, remember those supply and demand charts?

(3) The weak U.S. Dollar. It can’t even do 3 pull-ups its so weak. Remember when it looked like Sly Stallone in Rocky IV against Ivan Drago? I think it’s more like Woody Allen now. This means foreign purchasers are drawn to buy U.S. commodities, which reduces supply, which increases prices.

(4) Investor speculation in commodities. Fluctuation in the housing and stock market has pushed investors to new areas to find a profit. Commodity speculation (i.e. buying and selling by people who don’t intend to use the underlying product) has increased. This demand for the “financial instrument” commodities are has increased the prices of things such as soy oil.

(5) The weather. Robert Zoellick, President of the World Bank said climate, including droughts in important growing regions, such as Australia and Europe are a driver of food cost.

So that’s my two cents. I think these are points not often filed away when people hear brief stories on the TV news (which doesn’t have time for all the facts. Arm yourself with the facts and reeducate your friends when they bust out with “facts” they’ve drawn from about ten seconds of paying attention to this story. Thanks for your help.