Squaring the Culture




"...and I will make justice the plumb line, and righteousness the level;
then hail will sweep away the refuge of lies,
and the waters will overflow the secret place."
Isaiah 28:17

05/08/2008 (1:34 pm)

Yep, It's the Ethanol. Probably.

There’s been some chatter around the world, apparently bolstered by President Bush and Secretary of State Rice, that the world food shortage is actually being caused by increased demand for meat among the increasingly affluent Chinese and Indians. However, the release of world grain statistics from the UN’s Food and Agriculture Organization (FAO) earlier this week demolished that argument. Instead, it looks like it’s mostly demand for ethanol in the US that’s creating the problem — demand created by government subsidy. Indian and European Union news sources concur, “It’s the US.”

The chart at the right reports the FAO’s estimates for grain demand in China, India, and the US for 2006-7 and 2007-8. Demand from the Asian countries grew at a rate that’s consistent with the growth of world demand. Demand from the US grew almost 12%, an enormous leap up.

From the Indian Business Standard:

Various reports have now come round the view that it is not just the rising demand for food in China and India that has caused prices to spiral — it has been caused also by the rising demand for bio-fuels all across the world and speculative investments in commodity markets.

As a response to rising crude oil prices, huge quantities of corn and oilseeds have been used to produce bio-fuels…

With crude oil prices rising to over $115 a barrel, the US is learnt to have utilised 30 million tonnes of corn to make bio-fuel. The FAO data show that the usage of corn in the US to make bio-fuel increased two-and-a-half times between 2000 and 2006.

I suppose it’s prudent to wait a while to make sure the FAO statistics weren’t cooked to slam the US. However, there’s nothing implausible about the figures.

Ashok Gulati, the Asia director of the International Food Policy Research Institute, added that in addition to the US biofuels program, drought in Australia and speculative investments in the global foods market also contributed to the grain shortfall this year.

This provides yet another illustration why government interference in markets is a bad idea. When ethanol makes economic sense, the market will use it. If the government has to subsidize it in order for it to happen, that means — by definition — that it doesn’t make economic sense yet.

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4 Comments »

May 15, 2008 @ 9:23 am #

[…] bill spending goes to increases in food stamps to compensate for rising food prices. Given that the main reason for the rising food prices is the subsidy for ethanol found elsewhere in the same bill, this makes no sense at […]

June 26, 2009 @ 10:35 am #

[…] it gets even better; to crushing the economy and initiating a world-wide trade war, we now add starving the poor of Africa! No price too high to save the planet from .07 degrees of warming (their estimate, and not a […]

December 7, 2009 @ 11:21 am #

[…] do with global temperatures, as I reported here on PlumbBobBlog; the food prices were the result of US ethanol policy, and the oil prices were the result of rising Asian rim demand, world politics, and ill-timed dollar […]

August 8, 2010 @ 6:10 pm #

[…] food to run our factories? American biofuels subsidies, produced by the Bush administration, are probably responsible for nearly doubling the cost of grain worldwide during a period when hungry nations could least […]

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