01 January 2008

The End of Cheap Food

Jan 1 Update: AG sent me another article on the increase in food prices from ethanol policies. Get this:
Mark W. Leonard, who raises cattle and corn in western Iowa and owns a stake in several ethanol plants, said it was "absolutely essential" that the government increase the mandate for ethanol, and he urged Congress to push up the deadlines.

"This is a national security issue more than anything else," said Mr. Leonard, noting the nation’s dependence on imported oil. "We need to quit sending money to people who want to blow us up."
National security? I love that one. Falls into the same category as those who would weaken the constitution[pdf] to save us from terror
Originally posted 12/8/07: On useful side effect of studying in a department of Agricultural and Resource Economics is a good understanding of the extent and perversity of government interventions affecting agricultural products in the developed and developing worlds.

Earlier this summer, at the annual American Agricultural Economics Association conference, I suggested to a fellow-attendee that U.S. subsidies to ethanol were going to drive up food prices by diverting corn into fuel. By how much? Ten percent, I suggested. This old hand suggested that I was hopelessly naive: He suggested that prices would be flat.

In fact, they went up by 4.5 percent, but this number masks several problems. First is the relative weights given to foods in the index (most rose by 3-5 percent, but eggs went up by 27 percent). Second -- and more important -- are the effects of food inflation elsewhere: As Fidel Castro predicted, America's ethanol program hurts the poor. (In the U.S., people spend about ten percent of their income on food; people in developing countries spend about half their income.)

This week's Economist has a piece outlining these "unintended" consequences. Try this:
The Economist's food-price index is now at its highest since it began in 1845, having risen by one-third in the past year...

The demands of America's ethanol programme alone account for over half the world's unmet need for cereals. Without that programme, food prices would not be rising anything like as quickly as they have been. According to the World Bank, the grain needed to fill up an SUV would feed a person for a year.
Bottom Line: Bold, government stupidity is (again) undermining our security. Like other examples of government-led famine (Irish Potato Famine, the Great Leap Forward, Stalin's dekulakization and the Ethiopian government's use of strategic famine in the 1980s), this one will starve the poor. Unfortunately, the U.S. government is exporting starvation. I doubt USAID will be able to cope.

Filed under "water" because food requires water :)

2 comments:

Anonymous said...

some more articles addressing this issue (note sources):

http://www.agobservatory.org/library.cfm?refid=100001

http://www.ncga.com/news/notd/pdfs/061407_EthanolAndFoodPrices.pdf

http://www.ncga.com/ethanol/pdfs/2007/FoodCornPrices.pdf

AG

David Zetland said...

Another, industry-commissioned report:
http://www.informaecon.com/Renew_Fuels_Study_Dec_2007.pdf