Price increases caused by US biofuel mandate hurts poor countries

Oct 18, 2012 by Taylor Mcneil
“For import-dependent countries that no longer grow much of their own food, biofuel-induced price increases are simply a large net loss to society,” writes Tim Wise. Credit: Stefan Fierros/DepositPhotos

(Phys.org)—Price increases for corn—a direct result of the U.S. biofuels mandate—added $11.6 billion in costs for countries importing the food staple between 2006 and 2011. More than half the increase fell on poorer, developing nations, adversely affecting people who can least afford it, according to a new study by Timothy Wise, G05, research and policy director at the Tufts Global Development and Environment Institute (GDAE).

About 40 percent of all corn raised in the U.S. goes into production, in part because of the Renewable Fuel Standard, which in 2007 mandated a steadily increasing percentage of in U.S. gasoline supplies. America produces 13.7 billion gallons of ethanol annually, according to the U.S. Department of Agriculture. The growing demand for corn used in ethanol has been driving up prices globally, with record highs in 2007–08, another spike in 2010–11, and again now.

Combined with the widespread drought in America's this year, the ethanol requirement has pushed the price of corn to record highs over the last four months. The "diversion of something on the order of 15 percent of global from food to fuel has created a demand shock in global markets," Wise writes in his report "The Cost to Developing Countries of U.S. Corn Ethanol Expansion," which GDAE published as a working paper earlier this month. In recent years U.S. is estimated to account for 21 percent of .

Developing countries imported 280 million tons of corn between 2006 and 2011, and spent $6.6 billion more than they otherwise would have because of the U.S. biofuels mandate. Mexico assumed the greatest burden of any country—$1.1 billion more than it otherwise would have, driving up domestic costs for corn and corn products, Wise writes. The cost of tortillas, for instance, has risen 69 percent since 2005. Many Central American countries were equally adversely affected because they feed their growing populations with imported corn.

The rising demand for corn that is used to manufacture fuel has spillover effects: prices for other food staples, such as soybeans and wheat, have also gone up, according to the GDAE report.

The U.S. Environmental Protection Agency, which issued the biofuel mandate, should re-think its policy, Wise says, because the cost to poorer countries is too great. "For import-dependent countries that no longer grow much of their own food," he writes, "biofuel-induced price increases are simply a large net loss to society, straining government trade balances, using scarce hard currency, raising food prices for consumers and driving up the cost of government safety-net programs."

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nkalanaga
not rated yet Oct 18, 2012
So, why don't those developing countries develop their own agriculture? After all, if they depend on us for food, they're threatening their own independence, as we could simply quit selling to them any time we like.
rwinners
not rated yet Oct 18, 2012
Economics 101. I wonder how much food the Saudis produce each year. Probably not enough to feed even their small population.
kochevnik
3 / 5 (2) Oct 18, 2012
So, why don't those developing countries develop their own agriculture? After all, if they depend on us for food, they're threatening their own independence, as we could simply quit selling to them any time we like.
Because you have destroyed their governments by booting out or murdering the democratically leaders, loansharked the people with predatory tactics funding useless projects that only benefited a handful of thieves, and actively deployed and destroyed a government and instigated famine of millions as in Somalia.
jerryd
not rated yet Oct 18, 2012
This is based on a false premise.

It was proved the last time food prices spiked that ethanol had nothing to do with it or prices would not have dropped inbetween now and the last time.

The big user of corn is cattle using 10lbs of feed for a pound of fat, not protein.

Our ethanol comes from increased farm land of which we have more of and increase yields.

Next only the starch is used and the fiber, corn oil and protein is still in the mash which is recivered and used as a better animal or human food.

The Field corn used for ethanol is only good for animal feed, not human so human food is not effected. In fact after fermentation it's actually a higher quality animal or human feed from the yeast protein which is far better than the poor food value in the raw field corn.

Price has gone up because of drought here and increased oversea animal feed demand and cattle. So blame it on the real problem, not a straw man. Eat grass fed beef or other animal like goats, sheep instead.
Husky
not rated yet Oct 19, 2012
you know i heard on discovery, that Jack Daniels uses 900000 lbs of sweet corn daily for their famed old number 7 whisky , so, if hunger really strikes at home we can always lay off the booze...

As for some developing countries they do have a problem and their focus should be to become foodproducers again. I know we in the west have given them corn for rare-earth metals etc, but this perverted exploit is reaching its limits, they feel pain in the somach, we at the gaspump, so its time to rethink that.
Husky
not rated yet Oct 19, 2012
and maybe its time to consider these grand NARAWA and NARA schemes to import water from canada to the U.S. to counter these severe drought shockwaves, we are talking about jobs in the us and affordable food for the world.

These schemes are of megascale engineering but big problems need big solutions and we might as well use emerging thorium reactors for the pumping stations and lay a superconducting grid along the way, now thats the kind of new deal I think the americas need. There is plenty of budget and engineering workforce tied up in the american defense industry that could be used for that. Why go out on a regular turfwar to secure resources in other countries if you can create them at home?