The significant increase in oil prices in recent years (a record $100 per barrel in December 2007, three times higher than in 2002), as well as a greater concern about environmental issues and global warming, have gone hand-in-hand with a renewed and growing interest in the use of biofuels as an alternative energy source to fossil fuels. This has also led to a significant surge in commodity prices, mainly corn, soy, and other basic foods. This report presents recent developments in the use of biofuels, discusses their advantages and disadvantages, and assesses the balance of payments, terms of trade, and inflation implications of their market perspectives.