By Ernest Istook
Drought. War. Poverty.
These are leading causes of hunger, according to the United
Nations. Soon we may add another.
Ethanol.
Across the globe, people are discovering it’s a new contributor
to world hunger. Led by the United
States, governments are paying companies billions to make ethanol from corn and
other crops. The result: these crops
are diverted from the food supply, creating artificial shortages and higher
prices.
Even record harvests haven’t suppressed food prices.
Instead, prices are soaring to all-time highs.
Corn that traded around $2 a bushel just two years ago is now well over $5 a
bushel. The impact ripples through the
food chain of milk, butter, eggs, flour, pasta and everything else, because
dairy cattle, beef cattle, poultry and swine depend on the corn for their
feed. When chicken feed doesn’t cost
chicken feed anymore, then neither does anything else.
Other grains, like wheat, are also at record highs because farmers are
planting less wheat and more corn, thanks to the ethanol incentives. Less supply, plus more world demand, means
higher prices for wheat products, too, from flour to bread to pasta.
Full-scale food riots may arise in some parts of the world, as more and more
grain is diverted into fuel production. The Earth Policy Institute reports that ethanol-related food protests
occurred last year in Mexico, Italy, Pakistan and Indonesia. A price-driven stampede killed three and
injured 31 at a supermarket in China.
This problem became five times worse in December when the new “energy
bill” became law. It dictates that
Washington will pay a 51-cent-a-gallon subsidy on 36 billion gallons of ethanol
each year, up from the previous 7.5 billion gallon limit. Even
before this incentive expanded, official U.S. Department of Agriculture reports
showed that ethanol was “eating up” 20 percent of the corn grown in
America in 2006 – up from 6 percent in 2000 – a figure expected to rise in 2008
to 25 percent.
A 2007 report from
International Food Policy Research Institute, or IFPRI, concludes that
“Biofuel production currently adversely affects the poor through
price-level and price-volatility effects.” IFPRI’s report also noted, “Since the beginning of 2000,
butter and milk prices have tripled, and poultry prices have almost
doubled.”
As a Purdue
University study noted, “This leap in corn prices is leading to an
emerging opposition to ethanol subsidies on the part of animal agriculture,
export markets and other corn users.” Those groups have created a coalition to spotlight the ever-widening
costs of ethanol, including a website at http://www.balancedfoodandfuel.org/.
As oil prices approached $100 per barrel, market incentives
for producing more ethanol increased dramatically. But that wasn’t enough to satisfy the subsidy lobby. Hence they pressed Washington to decree that
we must use five times more ethanol and pay them for the privilege. That will raise the annual taxpayer-paid
subsidy to over $18 billion per year, even though they’re already profitable thanks
to high oil prices. The energy bill
converts ethanol manufacturers’ simple profits into super-profits, at taxpayer
expense. Yet somehow they’ve
escaped headlines – and the outrage – oil profits attract.
Gradually, however, the media are “discovering”
that ethanol subsidies are sending the worldwide cost of food through the
kitchen ceiling. USA Today reported, “In
a bid to reduce oil dependence, many countries are requiring additional use of
biofuels, such as ethanol and biodiesel. That, in turn, competes with food
destined for the table – and increases the prices of what consumers eat.“
Americans won’t starve because we have better supplies than
the Third World does. But as the Christian Science Monitor recently
reported, “As usual, it is the poorest people in the world who suffer
most, because food takes up a bigger share of their daily shopping bill than it
does for richer people.” That prompted the United Nations’ Food and
Agriculture Organization to issue “warnings about the dangers of turning
too much food into fuel.” Their conclusion? “The era
of cheap food is over.”
Ethanol advocates are also promoting other biofuels whose
cellulose can be used in place of corn. But the “food vs. fuel” problem isn’t solved if farmers remove
acreage from corn production to plant these instead. The ethanol lobby claims
that the higher costs of food are being pushed mostly by the higher costs of
energy. Of course, subsidizing ethanol
while suppressing domestic oil and gas drilling and halting construction of oil
refineries and nuclear power plants is a big reason why energy costs keep
climbing!
As usual, free enterprise offers the best solution. As The
Heritage Foundation’s Ben Lieberman and others have suggested, we should be
repealing the ethanol mandate instead of expanding it.
Taxpayers would save billions that now flow out of the
federal Treasury, plus our food would be more affordable. And the Third World wouldn’t face as many
food shortages.
Ending the subsidy is easier said than done, of course. As the
New York Times has noted, the ethanol lobby is now “an
entrenched political force.” Years of multi-billion dollar subsidies have turned a small group into a
wealthy and effective lobby on Capitol Hill.
Washington should give an ear to some common sense
instead. But expecting that to happen
may be just plain … corny.
Related special offer:
“Black Gold Stranglehold: The Myth of Scarcity and the Politics of Oil”
Ernest Istook is recovering from serving 14 years in Congress, and is now a Distinguished Fellow at The Heritage Foundation.
