Food Prices Will be Pushed by Ethanol Policies

US - Environmental groups are backing away from their support of federal biofuel and ethanol mandates, because while they say renewable fuel sources reduce greenhouse gas emissions they also could raise food costs and cause shortages, writes Monisha Bansal.
calendar icon 4 February 2008
clock icon 5 minute read
In a report for Lester Brown, president of the Earth Policy Institute said it is the beginning of one of the great tragedies in US history - a misguided effort to reduce oil insecurity by converting grain into fuel for cars, which is generating global food insecurity on a massive scale.

"The prices of food products made directly from these commodities such as bread, pasta, and tortillas, and those made indirectly, such as pork, poultry, beef, milk, and eggs, are everywhere on the rise," he added. "In Mexico, corn meal prices are up 60 percent. In Pakistan, flour prices have doubled. China is facing rampant food price inflation, some of the worst in decades."

Not stacking up

In a policy statement US industry advocacy group Ethanol Across America said that despite extensive media coverage on the potential for a significant increase in food prices due to corn demand for ethanol, statistics simply do not support this claim.

"US consumers continue to enjoy the most affordable and abundant food supply in the world - in spite of a surge in corn demand for ethanol production," the group said.

According to a March 2007 Congressional Research Service report, ethanol demand has already driven up corn prices as well as prices for soy beans and other grains. It says that since food costs represent a relatively small share of consumer spending for most US households, the price run-up is relatively easily absorbed in the short run.

However, the situation is very different for lower-income households and in many foreign markets, where food expenses represent a larger portion of household budgets.
"Unwise policy design choices can negate the potential energy and emission benefits of biofuels, and also impact human welfare through higher food prices, and damage the environment through deforestation and more intensive farming."

Britt Childs, World Resources Institute.

Brown noted World Bank estimates that said for each one percent rise in food prices, caloric intake among the poor drops 0.5 percent.

He said that the crop fuels program that currently satisfies scarcely three percent of US gasoline needs is simply not worth the human suffering and political chaos it is causing. If the entire US grain harvest were converted into ethanol, it would satisfy scarcely 18 percent of our automotive fuel needs.

"The irony is that U.S. taxpayers, by subsidizing the conversion of grain into ethanol, are in effect financing a rise in their own food prices. It is time to end the subsidy for converting food into fuel and to do it quickly before the deteriorating world food situation spirals out of control," he said.

Dire Diversion

Speaking to the Cybercast News Service Britt Childs, analyst with the World Resources Institute's Climate, Energy, and Pollution Program, said that biofuels crops often compete with food and feed crops for land use, water, and other inputs. They may also be food crops diverted from the table or stable to the fuel tank.

"Unwise policy design choices can not only negate the potential energy and emission benefits of biofuels, but can also impact human welfare through higher food prices, and damage the environment through deforestation and more intensive farming," he said.

"Policy makers need to focus more on ensuring that biofuels actually deliver environmental and energy benefits than on ramping up production. Biofuels do have potential to play some role in meeting future energy demand. But since large-scale carbon displacement would require significant destruction of global forests, the benefits of biofuels would likely be outweighed by the costs with respect to forestry, agriculture markets, and economic hardship for the world's poor," he explained.

Sallie James, a trade policy analyst with the libertarian Cato Institute said that the federal government should abandon its protection of US farmers from competition and its pursuit of a misguided biofuels policy whose environmental benefits are spurious at best.

"Politicians especially keen to 'stimulate' the economy by putting more money in the hands of consumers should start by reducing the taxes on imported dairy products, sugar, rice, and ethanol," she added.

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