Would you believe that the weather in Indiana could trigger popular unrest in China? Global demand for fuel made out of food is growing so fast that grain supplies are becoming dangerously thin. In this market, a hiccup in agricultural production — like a drought in America’s Corn Belt — could cause food prices to skyrocket in countries like China that depend on food imports. When poor urbanites in developing nations suddenly cannot afford to eat, they just might take to the streets in anger.
Fuel from food — biofuel — has become a policy priority in developed countries because its combustion emits fewer greenhouse gas than regular unleaded gasoline. Lawmakers in Europe and North America are supporting the manufacture of biofuel with generous subsidies and production quotas, without which the industry would not be economically viable.
So across the globe, huge quantities of food are being turned into fuel. This year alone, American biofuel producers used more than 550 billion pounds of corn. By 2016, Europe is expected to turn more than 39 billion pounds of wheat into fuel each year. Last year, in more than 100 production plants across the United States, 250 million gallons of biodiesel were made from soybeans. Brazil now dedicates about half its sugar crop to the production of fuel.
This revolution in agricultural production patterns is straining the food supply at the same time that China’s extraordinary growth is transforming global commodity markets. China needs more of everything — oil, tungsten, copper… and food.
For years, China was able to grow enough to feed itself and even had enough left over to become a major exporter of grains (like corn) and oilseeds (like soybeans). Now that’s changing. China already has become the world’s leading importer of soybeans, and economists predict that China will import 25 million tons of corn annually by 2020.
Between biofuel and China, food supplies are tightening, which is why food is becoming more expensive. Global market prices for grains and oilseeds are hovering at historically high or record levels. The United Nations predicts that over the next decade, demand for food will continue to outpace supply and the cost of all grains and oilseeds will increase by 50-80-percent.
To be sure, there will be no Malthusian famine. There are tremendous gains in production to be made in the developing world, especially in China and Brazil. And technological advances to improve productivity, such as biotechnology, will mean greater yields-per-acre and enhanced crops that can grow in previously inhospitable regions. In the long term, the world’s farmers will meet demand.
In the short to medium term, however, the global supply chain is going to be a problem. A natural disaster in America or in any other major food-exporting country could send the market price of food spiraling upward.
This could cause a worldwide catastrophe. The developing world has been urbanizing for decades, resulting in unprecedented concentrations of the poor in the world’s cities. There are no sustenance farms in urban areas; food must be bought. For the urban poor, food is usually the most significant expenditure, and when people can no longer afford bread, they tend to reach for stones.
Consider the case of corn tortillas in Mexico, which gets 80-percent of its corn imports from America. Earlier this year, demand for corn-based ethanol caused the price of corn to spike, resulting in higher tortilla prices. Thousands of poor Mexicans to took to the streets in protest.
Many countries in Africa are dependent upon the global market for wheat. Egypt, for example, is the world’s largest importer of wheat. With global supplies tight, an abnormally cold growing season in a major wheat exporter like Russia or Canada quickly would push up the price of wheat on the global market and could instigate panic in African urban areas.
In China, the price of pork is politically sensitive, because urbanites there rely on pig meat for protein. Pork is so important in China that the government actually maintains a strategic pork reserve to mitigate the social repercussions of a shortage.
The cost of pork is determined primarily by the price of corn and soybeans, from which hog feed is made. As China becomes increasingly reliant on the global market for these staples, the potential grows for rapid inflation in the price of Chinese pork due to disruptions in the global supply chain of ingredients for feed. And expensive pork makes for social instability in the Middle Kingdom.
In an increasingly globalized economy, instability in a major trading partner like Mexico or China would have dire repercussions here. Are biofuels and feel-good green politics worth the risk to global order?
– William Yeatman is an energy-policy analyst at the Competitive Enterprise Institute in Washington, D.C.