Ethanol versus the Poor

The law of unintended consequences strikes again.

P. Gardner Goldsmith
The Freeman
July 2007
Volume: 57, Issue: 6

…At the end of March Castro spoke out with great fire and resentment about the attempt by the Bush administration and Congress to increase ethanol use in the United States. “More than 3 billion people in the world are being condemned to a premature death from hunger and thirst,” he said in a March 29 op-ed published in Granma, the official Cuban Communist Party newspaper.

Coming from a man responsible for the torture, death, and exile of many people, these humanitarian claims are more than a bit hypocritical. But despite the source, and the overblown nature of the rhetoric, there is a barely discernible ring of truth to his words.

Ethanol, of course, is derived from the fermentation of certain carbohydrate-rich plants, such as sugar cane, wood pulp, sugar beets, and—as shocking as it seems—corn. And since politicians in Washington for decades have taken it upon themselves to interfere in not only the energy markets, but also pretty much every market, they recently have shown no qualms about forcing consumers to use more ethanol in their automobiles.

As H. Josef Hebert of the Associated Press reported on May 1, “There is an ethanol juggernaut moving through Congress that will call for a sevenfold increase in biofuels production—almost all of it ethanol—over the next 15 years.”

This push includes the approval on May 2, by a 20–3 vote in the Senate Energy and Natural Resources Committee, of a bill that would require 36 billion gallons of “renewable fuel” use by 2022. It includes a proposal by House Speaker Nancy Pelosi to have an “energy security” bill ready for a vote by the summer, just in time to feed off anger over high fuel prices, and just in time to promote ethanol even more. The push encompasses loan guarantees, tax breaks, and subsidies for the building of cellulose-based ethanol plants in the United States, much like a 2002 law, the Renewable Energy Systems and Energy Efficiency Improvements Program, that wasted $73 million through grants and loans to farmers to buy renewable energy systems. And finally, it piles all of this on top of a requirement passed two years ago making oil refiners double the amount of ethanol in their gas products, from 4 to 7.5 billion gallons.

Of course, President Bush has pledged to cut gasoline consumption (“addiction”) by 20 percent over the next decade. Ethanol is to play a large part in that plan.

So much for the free market…

…But by imposing their will on participants in the market for fuel, politicians not only commit the unethical act of coercion, they intercede in, and interfere with, the proper flow of capital in all sectors of the market.

As strange as it appears, and as insincere as it is, Castro’s statement about starvation and thirst points this out.

U.S. government requirements for increased ethanol use have already caused a higher demand, and thus higher prices, for corn, and the trend will only worsen as more government strictures interfere with the market. These higher prices have devastating effects on people living on the margins. In Mexico the cost of corn tortillas has more than doubled in the past year. Between August and December 2006, anticipation of increased demand for corn drove prices from $2.09 to $3.01 per bushel, making it more difficult for the impoverished to afford the basic foodstuff on which they rely…

The entire article is at The Freeman.

Now, nearly four years later:

Rush to Use Crops as Fuel Raises Food Prices and Hunger Fears

Elisabeth Rosenthal
The New York Times

The starchy cassava root has long been an important ingredient in everything from tapioca pudding and ice cream to paper and animal feed.

But last year, 98 percent of cassava chips exported from Thailand, the world’s largest cassava exporter, went to just one place and almost all for one purpose: to China to make biofuel. Driven by new demand, Thai exports of cassava chips have increased nearly fourfold since 2008, and the price of cassava has roughly doubled.

Each year, an ever larger portion of the world’s crops — cassava and corn, sugar and palm oil — is being diverted for biofuels as developed countries pass laws mandating greater use of nonfossil fuels and as emerging powerhouses like China seek new sources of energy to keep their cars and industries running. Cassava is a relatively new entrant in the biofuel stream.

But with food prices rising sharply in recent months, many experts are calling on countries to scale back their headlong rush into green fuel development, arguing that the combination of ambitious biofuel targets and mediocre harvests of some crucial crops is contributing to high prices, hunger and political instability.

This year, the United Nations Food and Agriculture Organization reported that its index of food prices was the highest in its more than 20 years of existence. Prices rose 15 percent from October to January alone, potentially “throwing an additional 44 million people in low- and middle-income countries into poverty,” the World Bank said.

Soaring food prices have caused riots or contributed to political turmoil in a host of poor countries in recent months, including Algeria, Egypt and Bangladesh, where palm oil, a common biofuel ingredient, provides crucial nutrition to a desperately poor populace. During the second half of 2010, the price of corn rose steeply — 73 percent in the United States — an increase that the United Nations World Food Program attributed in part to the greater use of American corn for bioethanol.

“The fact that cassava is being used for biofuel in China, rapeseed is being used in Europe, and sugar cane elsewhere is definitely creating a shift in demand curves,” said Timothy D. Searchinger, a research scholar at Princeton University who studies the topic. “Biofuels are contributing to higher prices and tighter markets.”…

…While no one is suggesting that countries abandon biofuels, Mr. Dubois and other food experts suggest that they should revise their policies so that rigid fuel mandates can be suspended when food stocks get low or prices become too high.

“The policy really has to be food first,” said Hans Timmer, director of the Development Prospects Group of the World Bank. “The problems occur when you set targets for biofuels irrespective of the prices of other commodities.”…

The entire article is at The New York Times.

Both articles H/T The Freeman on Facebook, Turning Food Crops to Fuel Poses Global Danger

Comments are closed.