Thursday, April 24, 2008

The role of the US bio-fuels program in the global food crisis

Peter Timmer is Visiting Professor in the Program on Food Security and Environment at Stanford University and a Non-Resident Fellow at the Center for Global Development. In a Q&A he says,
Unless some way can be found to stop the explosive rise in food prices generally, and rice prices in particular, we will see sharply higher mortality. Most of these deaths will be in Asia because of the huge numbers of poor, hungry people there who are dependent on rice for their daily subsistence.

This will not be mass starvation, with people dying in the streets, but it will be sharply higher infant and child mortality and weakened adults succumbing prematurely to infectious diseases. If current rice prices in world markets are actually transmitted into most Asian countries--and this is not yet a reality, but it becomes more likely every day the world price stays this high--then even conservative calculations suggest that upwards of 10 million people will die prematurely.
The trigger for the explosion in rice prices was the decision of the Indian government to impose an export ban in November 2007, taking the world's second largest exporter out of the market. That set off fears in the newly elected, populist government in Thailand that rice prices would get out of control there, so export controls were openly discussed-- Thailand is the world's largest rice exporter. Vietnam followed with export restrictions in January 2008.

On the import side, the Philippines has been throwing fuel on the fire by insisting on huge tenders for rice from a world market that cannot provide it, thus driving up the price in this thin market.
There are two obvious things the rich countries can do: first, boost supply by funding food aid channels, including the World Food Program and others, with cash and commodities. Rice is now quite scarce physically in a number of distressed countries--a reversal of situations caused mostly by local crop failures or disasters. Second, end bio-fuel subsidies and mandates immediately. There is substantial disagreement over the role corn-based ethanol (in the U.S.) and vegetable oil-based bio-diesel (in Europe and some parts of Asia) in the recent price spikes--the "respectable" range is from 10 to 60 percent. But there is no way the rich countries can play a leadership role in bringing this crisis under control as long as they insist there is plenty of food for people, livestock, AND automobiles. There just isn't--and we've known that from the start of the U.S. bio-fuels program.
Read it all here.

At econbrowser James Hamilton provides a graphic showing the growth of ethanol corn use in the US. Hamilton asks,
How should a well-fed American react when some of the world's poorest citizens in Haiti and Bangladesh riot over the rising price of food? To be sure, there are many factors influencing food prices. But to me it's natural to begin with the element that represents a deliberate policy choice on the part of the United States. I refer to America's decision to divert a significant part of our agricultural production for purposes of creating a fuel additive for motor vehicles.

On one level, the question of whether it is morally acceptable for us to divert the food that might have fed the hungry for purposes of driving our SUVs is no different from similar questions about any of a number of other details of how the well-off dispose of their wealth. But I'm thinking that the profound inefficiencies associated with this particular disposition of resources may also be relevant. As a result of ethanol subsidies and mandates, the dollar value of what we ourselves throw away in order to produce fuel in this fashion could be 50% greater than the value of the fuel itself. In other words, we could have more food for the Haitians, more fuel for us, and still have something left over for your other favorite cause, if we were simply to use our existing resources more wisely.

We have adopted this policy not because we want to drive our cars, but because our elected officials perceive a greater reward from generating a windfall for American farmers.
Free exchange, the economics blog at The Economist, has this to say:
[Bio-fuel production] has come in for particular scrutiny in America, where government incentives have led to a boom in ethanol production and have helped to tie movements in energy costs to those in food markets.

But the connection between energy and food prices doesn't stop there. Petroleum is an input to farm machinery, and dear petrol adds to the cost of food shipments. And, as Felix Salmon noted yesterday, fertiliser is overwhelmingly produced from natural gas. Mr Salmon quotes Paul Scheckel, who writes:
Fertilizer production is second only to petroleum refining when it comes to industrial use of natural gas in the United States: 97 percent of the fertilizer applied to crops is manufactured from natural gas. With spiking energy costs, fertilizer manufacturers are opting to close their doors and instead sell their natural gas supplies.
Interestingly, this creates another link between biofuel production and food costs. It seems that fields planted repeatedly in corn require an especially large dose of nitrogen fertiliser.
I originally posted this at The Lead.



Post a Comment

Links to this post:

Create a Link

<< Home