Food vs. Fuel

By Robert J. Samuelson
The Washington Post Wednesday, December 12, 2007

If people can’t eat, they can’t do much else. One of the great achievements of
the past century has been the enormous expansion of food production, which
has virtually eliminated starvation in advanced countries and has made huge
gains against it in poor countries. Since 1961, world population has increased
112 percent; meanwhile, global production is up 164 percent for grains and
almost 700 percent for meats. We owe this mainly to better seed varieties,
more fertilizer, more mechanization and better farm practices. Food in most
developed countries is so plentiful and inexpensive that obesity — partly
caused by overeating — is a major social problem.

But the world food system may now be undergoing a radical break with this
past. “The end of cheap food” is how the Economist magazine recently
described it. During the past year, prices of basic grains (wheat, corn) and
oilseeds (soybeans) have soared. Corn that had been selling at about $2 a
bushel is now more than $3; wheat that had been averaging $3 to $4 a
bushel has recently hovered around $9. Because feed grains are a major
cost in meat, dairy and poultry production, retail prices have also risen. In
the United States, dairy prices are up 13 percent in 2007; egg prices have
risen 42 percent in the past year. Other countries are also experiencing increases.

Higher grocery prices obviously make it harder to achieve economic growth
and low inflation simultaneously. But if higher food prices encouraged better
eating habits, they might actually have some benefits in richer societies. The
truly grave consequences involve poor countries, where higher prices threaten
more hunger and malnutrition.

To be sure, some farmers in these countries benefit from higher prices. But
many poor countries — including most in sub-Saharan Africa — are net
grain importers, says the International Food Policy Research Institute, a
Washington-based think tank. In some of these countries, the poorest of the
poor spend 70 percent or more of their budgets on food. About a third of
the population of sub-Saharan Africa is undernourished, according to the
Food and Agriculture Organization of the United Nations. That proportion
has barely changed since the early 1990s. High food prices make gains harder.

What’s disturbing is that the present run-up doesn’t seem to be temporary.
Of course, farming is always hostage to Mother Nature, and drought
in Australia has cut the wheat harvest and contributed to higher worldwide
prices. But the larger causes lie elsewhere. One is growing prosperity
in China, India, other Asian countries and Latin America. As people
become richer, they improve their diets by eating more protein in the form
of meat and dairy products. The demand for animal feed grains rises. This
has been going on for years and, until recently, was met by the steady gains
in agricultural output from improved technology and management.

It’s the extra demand for grains to make biofuels, spurred heavily in the
United States by government tax subsidies and fuel mandates, that has
pushed prices dramatically higher. The Economist rightly calls these
U.S. government subsidies “reckless.” Since 2000, the share of the U.S.
corn crop devoted to ethanol production has increased from about
6 percent to about 25 percent — and is still headed up.

Farmers benefit from higher prices. Up to a point, investors in ethanol
refineries also gain from the mandated use of their output (though high
corn prices have eroded or eliminated their profits). But who else wins
is unclear. Although global biofuel production has tripled since 2000, it
still accounts for less than 3 percent of worldwide transportation fuel,
reports the U.S. Agriculture Department. Even if all U.S. corn were
diverted into ethanol, it would replace only about 12 percent of U.S.
transportation fuel (and less of total oil use), according to one study.

Biofuels became politically fashionable because they combined benefits
for farmers with popular causes: increasing energy “security”; curbing
global warming. Unfortunately, the marriage is contrived. Not only are
fuel savings meager, so are the environmental benefits. Substituting
corn-based ethanol for gasoline results in little reduction in greenhouse
gases. Indeed, the demand for biofuels encourages deforestation in
developing countries; the New York Times recently reported the
clearing of Indonesian forests to increase palm oil production for
biofuel. Forests absorb carbon dioxide, a greenhouse gas.

This is not a case of unintended consequences. A new generation
of “cellulosic” fuels (made from grasses, crop residue or wood chips)
might deliver benefits, but the adverse effects of corn-based ethanol
were widely anticipated. Government subsidies reflect the careless
and cynical manipulation of worthy public goals for selfish ends.
That the new farm bill may expand the ethanol mandates confirms
an old lesson: Having embraced a giveaway, politicians cannot stop
it, no matter how dubious.

Comments are closed.

©2007 Coalition On Sustainable Transportation