Cereal prices remain high due to biofuel boom

By Karen Willmer

- Last updated on GMT

Related tags: Cereal, European union, European commission

An increase in the demand for biofuel will cause an increase in
demand for cereals, maintaining the relatively high raw material
prices, the European Commission said today.

In a new report, Commission analysts said the expansion of domestic consumption and cereal exports mean supply will be able to meet demand in the medium-term between now and 2014. Current high cereal prices are due to the low cereal harvest in 2006/2007, and the rise in demand during this period, the report stated. The biofuel boom in the US has also helped keep the cereal prices high, the report says. However, the Commission suggests cereal prices will decline over the medium term, despite price hikes due to adverse weather, as overall production is increasing faster than demand. "Over the last seven years agricultural producer prices tended to slightly decline in nominal terms and more strongly in real terms, while consumer prices in general and for food steadily increased in nominal terms,"​ the European Commission said. The gradual integration of Bulgaria, Hungary, Slovakia and Romania into the single EU market, will also help balance the cereal markets, despite the increased need for imports following the accession of these countries, the Commission report continues. The European Commission predicts total cereal consumption to be 277.8m tonnes by 2014, rising from 250.4m tonnes in 2006. This follows the increase in cereals consumption for bioenergy from 3m tonnes in 2006 to 19.3mio tonnes in 2014. Production will increase from 242.6m tonnes in 2006 to 299.9m tonnes in 2014, the report predicts. Total EU cereal exports are expected to rise to 35.5m tonnes in 2014, from 20.8m tonnes in 2006, however imports will decrease to 11.1m tonnes from the 12.1mio tonnes in 2006. The analysis follows the Food and Agriculture Organisation (FAO)'s report last month announcing world cereal prices will remain high, despite the world record cereal production forecast. "Second generation biofuel processing technologies would become economically viable by the end of the projection period and start contributing to industrial scale to the biofuel production in the EU,"​ the FAO report said.

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