How Fuel Prices Effect Food Prices

Westhoff gives eight rules of thumb on food prices. The first rule of thumb is increasing biofuel production raises food prices. When food crops such as corn are planted for biofuel, this reduces the available food, which in turn causes food prices to increase. Unless corn production can be raised to replace those diverted for biofuel, demand in biofuel would certainly raise food prices because less food is produced. In the US and Europe, government policies demand that a certain proportion of petrol to consist of biofuel. And to boost biofuel production, government subsidies are given to farmers to encourage more planting for biofuel. In the height of the food crisis in 2008, US government subsidies are one of the reasons blamed for the increase in food prices.
The second rule of thumb is food prices tend to follow crude oil prices. This relationship is well known because oil is the lifeblood of the world’s economy. Without oil, the world’s economy would collapse overnight. High energy prices have a direct impact on farm production costs. About one-third of the farm production costs involves the purchase of fertilizers and pesticides, both of which require oil to produce. Other farm production costs involving oil would be the cost of running farm machinery and equipment. Food are often grown far from cities, so high costs of transportation (which require fuel) are incurred to bring food to the urban folks. Half of the world population today of nearly 7 billion live within cities.
http://christopherteh.com/blog/2011/02/18/food_economics/

Interesting to see how certain huge aspects and necessities of the economy effect each other... Just shows how everything works by transitive property. If this then this, which causes this...

post by ella