Thomas Dobbs is Professor Emeritus of Economics at South Dakota State University, and a W.K. Kellogg Foundation Food & Society Policy Fellow.
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American agriculture is becoming addicted to corn-based ethanol, and the economic and environmental effects of this addiction call for some intervention!
The explosive growth in U.S. ethanol production from corn is having worldwide ramifications. December 6 articles in The Economist ("Cheap no more" and "The end of cheap food") trace the impacts of ethanol production on prices of other crops and on food. Rising crop prices can benefit farmers not only in the U.S., but also farmers who have marketable surpluses in other countries.
Many consumers, however, are hurt by the rising food prices. This is especially true of urban and landless rural poor in developing countries. According to The Economist's food-price index, food prices have risen in real (inflation-adjusted) terms by 75 percent since 2005. International Food Policy Research Institute data cited by The Economist indicates "the expansion of ethanol and other biofuels could reduce caloric intake by another 4-8 percent in Africa and 2-5 percent in Asia by 2020."
The growth in ethanol production is hardly a market phenomenon. According to The Economist, Federal subsidies for ethanol production already come to over $7 billion a year. Moreover, many previous years of cheap corn that resulted from Federal farm program subsidies helped lay the economic foundation for ethanol plants already built or under construction.
Implications for energy and farm policies?
What are the policy implications of this "food versus fuel" conflict that past and present energy and farm policies have created? As far as the ethanol industry is concerned, its interests trump all other interests, including those of taxpayers and the poor who can least afford higher food prices.