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Last Updated: Wednesday, 4 July 2007, 16:49 GMT 17:49 UK
Biofuels 'to push farm prices up'
Corn stalks in field
Demand for green fuels has been driving recent farm price rises
The rapidly growing biofuel market will keep farm commodity prices high over the next decade, a key study has said.

According to the report, co-written by the Organisation for Economic Development (OECD), biofuels will have a major impact on the farming sector.

Even without demand for the "green" fuel, recent falls in output - thanks to drought and low stocks - will keep prices high, the report added.

The study predicts prices will rise by between 20% and 50% by 2016.

"Growing use of cereals, sugar, oilseeds and vegetable oils to satisfy the needs of a rapidly increasing biofuel industry is one of the main drivers in the outlook," said the report, which was co-written by the UN Food and Agriculture Organisation (FAO).

Biofuels - made from grains, sugar and oilseeds - are gaining popularity as countries look to reduce their dependence on fossil fuels, cut carbon emissions and push farm revenues higher.

Growth market

According to the report ethanol production in the US, which mainly uses domestic corn, is expected to jump by 50% in 2007 - and to double by 2016.

Meanwhile in Brazil - currently the world's fastest growing ethanol producer - biofuel output is set to hit 44bn litres over the next 10 years, 145% more than in 2006.

"Bioenergies have become a key factor in the functioning of agriculture markets," Loek Boonekamp, a senior OECD official.

"In the medium term we believe that they could lead to prices on international markets rising quite considerably, at higher levels than what we had predicted in former outlooks and above the average of the last 10 years."

Looking ahead, the OECD And FAO expect prices to remain near the record highs they have hit in recent months.

As well as biofuel demand, other temporary factors which led to low harvests last year, as well as fears of poor harvests in the future, are expected to underpin prices at their current levels.

The rise in farm prices could contribute to rising inflationary pressures worldwide, along with increases in the price of commodities like oil.

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