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Food for Fuel Is No Laughing Matter



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Cliff May begins his NRO column, “The Hunger,” by retelling an old joke about astronomers discovering a giant meteor hurtling towards Earth and the Washington Post running a headline: “World to end tomorrow: minorities and poor to suffer most.” While it is fine to make light of the media’s tendency to paint any change in market conditions as a class issue, in this case the joke doesn’t work. When we are talking about substantial food price inflation, it is the poor who suffer. Rampant food inflation also increases the number of poor people.

I don’t usually quote eco-radical George Monbiot, but on this topic nobody has said it better: “Even when the price of food was low, 850 million people went hungry because they could not afford to buy it. With every increment in the price of flour or grain, several million more are pushed below the bread line.”

Here’s a somewhat more technical explanation by Josette Sheeran, executive director of the UN World Food Program: “For the middle classes” in poor countries, the rise in food prices means “cutting out medical care. For those on $2 a day, it means cutting out meat and taking the children out of school. For those on $1 a day, it means cutting out meat and vegetables and eating only cereals. And for those on 50 cents a day, it means total disaster.”

Both World Bank President Robert Zoellick and International Monetary Fund Managing Director Domenique Strauss-Kahn warn that the increase in world food prices could force 100 million people back into absolute poverty (defined as a household income of $1 a day or less), wiping out all the gains the poorest billion people achieved during the past decade.

The price of wheat jumped 120 percent in the past year, hitting a 28-year high in February. The price of rice, the staple for billions of Asians, is up 147 percent over the past year, hitting 19-year high. The price of corn tripled in the past two years, increasing from $2.00 a bushel in January 2006, to $3.05 in January 2007, to $4.25 in January 2008, and hitting $6 a bushel in April 2008.

The consequences are appalling. El Salvador’s poor are eating only half as much as they did a year ago. Afghans are now spending half their income on food, up from a tenth in 2006. In Bangladesh, a two-kilogram bag of rice now consumes about half of the daily income of a poor family. Many Haitians try to assuage their hunger by eating toxic patties made of dirt, spice, and cooking oil.

Cliff observes that, “if you happen to be a poor farmer, increasing prices for crops should not make you ‘suffer most’ — they should make you suffer less. If you can grow even a little more than you consume, you will end up with additional cash in your pocket.” Yes, and that’s why some experts used to say that a modest increase in grain prices could be a net benefit for poor countries. But steep inflation in basic staples hurts far more people than it helps.

Consider Mauritania, a country where only 0.2 percent of the land is arable and people are almost totally dependent on food imports for their survival. In the past six months, the cost of imported wheat in Mauritania soared 67 percent, cooking oil 117 percent, and rice 25 percent. Many are forced to slaughter or sell off their most valuable asset — their livestock — just to obtain or afford their next meal.

Cliff suggests that the corn ethanol mandate can’t be a big factor in the current food crisis, because “the total U.S. corn crop has increased 45 percent since 2002” while the “amount of corn available for food and feed has increased 34 percent — after the part used for ethanol has been taken out.” These numbers may be correct, but they are misleading, because the first ethanol mandate was not adopted until July 2005.

So let’s compare total U.S. corn production with U.S. corn production for ethanol in two more relevant years — the current crop year and the crop year before the first mandate was enacted. According to the USDA, total U.S. corn production was 11.8 billion bushels in 2004/05 and will reach an estimated 13 billion bushels in 2007/08 — an increase of 1.2 billion bushels. Corn production for ethanol was 1.3 billion bushels in 2004/05 and will reach an estimated 3.2 billion bushels in 2007/08 — an increase of 1.9 billion bushels. Ethanol manufacture is consuming all the increase in total U.S. corn production, and then some.

Indeed, according to the World Bank, “Almost all of the increase in global maize [corn] production from 2004 to 2007 (the period when grain prices rose sharply) went for bio-fuels production in the U.S., while existing stocks were depleted by an increase in global consumption for other uses.” The World Bank explains: “From 2004 to 2007, global maize production increased 51 million tons, biofuel use in the U.S. increased 50 million tons and global consumption for all other uses increased 33 million tons, which caused global stocks to decline by 30 million tons.” That bears repeating: “Almost all” the increase in global corn production from 2004 to 2007 went to produce ethanol in the United States, and in the process global corn stocks declined by 30 million tons. How could that not have dramatic effects on global corn prices?

Cliff’s numbers are also misleading because they tell us nothing about the impact of the ethanol mandate on other crops such as wheat. A major reason wheat prices are so high is that wheat inventories are at record lows. Wheat inventories are low because U.S. farmers, responding to the ethanol mandate, increased corn acreage by 18 percent over the past year but increased wheat acreage by only 1 percent. Moreover, corn competes with wheat not only for land but also for customers. This means that when Congress artificially increases the demand for and price of corn, wheat farmers are able to charge more for their product and still be competitive.

The International Food Policy Research Institute agrees with Cliff that the biggest factor driving up grain prices is global income and demand growth. However, where Cliff sees transportation energy costs from high petroleum prices as the next biggest factor, IFPRI ranks it near the bottom (sixth out of seven factors). The second biggest factor, according to IFPRI, is the surge in biofuel production (see slide 14 of this presentation).

Call me a bleeding heart, but UK Prime Minister Gordon Brown has it exactly right when he endorses the World Health Organization’s view that hunger is the “number one public health threat” across the world, contributing to a third of all child deaths and 10 percent of all disease.

Congress cannot stop the Chinese and Indian economies from growing any more than it can prevent drought in Australia and the consequent drop in global wheat stocks. Congress also can do relatively little in the near-term to bring down petroleum prices. The one factor exacerbating world hunger that Congress can do something about is U.S. biofuel policy. Repealing the corn ethanol mandate would free up billions of bushels to feed people and livestock. Grain prices would fall — by an estimated 20 percent for corn and 10 percent for wheat, according to IFPRI.

When you get right down to it, the ethanol mandate is just a Soviet-style production quota system in green garb. Even the green tint is rubbing off as experts document how corn ethanol produces more greenhouse gas emissions than the gasoline it displaces, and how Europe’s biofuel directive is bankrolling rainforest destruction and species loss in Indonesia and Malaysia. Even Time magazine, a voice of global warming alarmism, now calls the U.S. and EU biofuel programs a “clean energy scam.”

If Soviet five-year plans were the height of economic folly, then what are we to make of the 2007 ethanol mandate, which established a 15-year plan, setting production quota from 2008 through 2022? Just because the mandate does not deliberately aim to starve hungry people, as Soviet policy sometimes did, does not mean conservatives should defend it or trivialize the hardship it is creating.

– Marlo Lewis is a senior fellow at the Competitive Enterprise Institute.



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