That’s the title of a new research paper I wrote for the United Soybean Board.
The share of soybean oil going toward biofuel production has quadrupled over the past decade. In the most recent marketing year, 43% of all soybean oil used in the United States went toward biofuel production. Beginning in the fall of 2020, crude wholesale soybean oil prices began to rise and have approximately doubled since that time at the same time that retail food prices have been rising.
The dramatic increase in crude soybean oil prices coupled with the increased use of soybean oil in biofuels has raised questions about the extent to which increased use of soybean oil in biofuels has contributed to the rising retail prices of food products for consumers, renewing the old food vs. fuel debates.
To quantify the magnitude effects of rising soybean oil demand on retail food prices, an economic model was constructed linking farm-supply of soybeans to retail-demand for various food items.
What did I find?
An increase in demand for soy-based biofuels does indeed increase retail prices of foods that contain oil, but by a relatively small amount. A 20% increase in quantity of soybean oil demanded for biofuels pushes up retail prices for oil used in frying/baking, margarine, salad/cooking oil, and other oil-containing foods by 0.16%, 0.82%, 4.41%, and 0.16%, respectively. The retail oil price increases are smaller than the wholesale price increases because soybean oil is only a small share of the overall cost involved in producing these retail foods.
Retail prices for animal protein products fall as a result of rising demand for soy-based biofuels. A 20% increase in quantity of soybean oil demanded for biofuels leads to retail dairy, beef, pork, chicken, and egg price declines of -0.02%, -0.01%, -0.06%, -0.13%, and -0.16%, projected respectively. Animal product prices fall because soybean meal, a primary animal feed input, is a co-product of the soybean crush, which also produces oil. Rising soybean oil prices leads to an increased supply of oil, which also leads to an increased supply of meal, thereby bringing down meal prices and the prices of animal products that rely on meal.
Overall impacts of increased demand for soy-based biofuels on the Consumer Price Index are mixed, but the reductions in meat, dairy and egg prices partially offset the increases in oil and bakery prices, leaving the overall food at home portion of the Consumer Price Index essentially unchanged.
Change in Retail Food Prices Resulting from 20% Increase in Demand for Soybean Oil Used in Biofuels
So, it appears that it isn’t food vs. fuel, but rather in this case, food and fuel.
You can read the whole report here.