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Agflation and Biofuel Plants

Updated on May 29, 2013

Agflation is the inflationary figure for agricultural products, most notably food products that are affected by a special form of alternative energy source, Biofuel. Biofuel is petrol that is produced from the natural oil within plants. These biofuels can be used to run vehicles, replacing the nonrenewable, traditional crude oil. Not all plants are suitable for biofuel, and some are more efficient in producing oil than other. For this reason special plants are planted; using the agricultural organic wastes are not as efficient. Biofuel plants are highly subsidized around the world, and are also in high demand. This makes biofuel plants to be worth much more to be produced than traditional food crops. Also biofuel plants usually need lots of water, and exhaust their soil fairly quickly. What this results in is that many farmers replace their traditional crops with biofuel plants. After a few years, the soil needs to be recultivated and rested so crops can be grown on them again. What these result in is fewer crops produced, which means lower supply of agricultural food product. At the same time large fast developing countries, such as China and India produce an increasingly higher demand for such products. In fact China and India are important, and becoming increasingly major export markets for agricultural producers around the world. This is because the middle class in developing countries are expanding, as well as consuming more food per capita also. This growing demand in such countries is coupled with old, traditional, and mostly inefficient methods of producing, and distributing agricultural food products for their own populations.

According to the law of supply and demand in free markets, when demand is increasing and supply is decreasing, in case of unregulated prices, prices will go up. This is exactly what is happening to the price of food around the world since the early 2000s (Japan is an exception from under this trend due to a shrinking-, aging population, and strict immigration policies). 

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