What Is Not Seen

What Is Not Seen April 9, 2008

I wonder if this:

Hungry Haitians stormed the presidential palace Tuesday to demand the resignation of President Rene Preval over soaring food prices and U.N. peacekeepers battled rioters with rubber bullets and tear gas.

Food prices, which have risen 40 percent on average since mid-2007, are causing unrest around the world. But nowhere do they pose a greater threat to democracy than in Haiti, one of the world’s poorest countries where in the best of times most people struggle to fill their bellies.

is related to this:

The recent rise in corn prices–almost 70 percent in the past six months–caused by the increased demand for ethanol biofuel has come much sooner than many agriculture economists had expected.

According to the United States Department of Agriculture, this year the country is going to use 18 to 20 percent of its total corn crop for the production of ethanol, and by next year that will jump to 25 percent. And that increase, says Marshall Martin, an agriculture economist at Purdue University, “is the main driver behind the price increase for corn.”

The jump in corn prices is already affecting the cost of food. The most notable example: in Mexico, which gets much of its corn from the United States, the price of corn tortillas has doubled in the past year, according to press reports, setting off large protest marches in Mexico City. It’s almost certain that most of the rise in corn prices is due to the U.S. ethanol policy, says David Victor, director of the Program on Energy and Sustainable Development at Stanford University.
 

“All things that use corn are going to have higher prices and higher cost, to some extent, that will be passed on to consumers,” says Wally Tyner, professor of agriculture economics at Purdue University. The impact of this is being felt first in animal feed, particularly poultry and pork. Poultry feed is about two-thirds corn; as a result, the cost to produce poultry–both meat and eggs–has already risen about 15 percent due to corn prices, says Tyner.

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  • Third

    “It’s almost certain that most of the rise in corn prices is due to the U.S. ethanol policy”

    Some, yes. Most? Seriously doubt it.

    Also, aren’t farmers using distiller grains as feed more now? That should slow, stop, or even cut the price of meat.

  • Third

    “It’s almost certain that most of the rise in corn prices is due to the U.S. ethanol policy”

    Some, yes. Most? Seriously doubt it.

    Also, aren’t farmers using distiller grains as feed more now? That should slow, stop, or even cut the price of meat.

  • I agree with Third that “most” might be incorrect, but it is at least close to correct. One cannot discount energy prices as a whole. They affect every part of our economy and profoundly so. We’re not just talking about whether people decide to travel for Memorial Day weekend, but the real cost of commerce is up at every step of the way – from manufacturing and farming costs, to the expense of transportation, to the retailer’s energy costs, etc. So, when we factor in excessive energy costs and that non-ethanol demand (domestic and global) for our grain grows every year as it is, and now we’re siphoning of 20% annually to ethanol production (a huge amount), we have indeed created a situation where demand is driving up the price. From what I understand, distiller grains are being used more and more, but it’s not the only route, and since the initial cost of grain is up and there is a market for distiller grains, so goes the cost of that as well.

    At one time, I thought pursuing ethanol usage was a wise and prudent measure, now I’m beyond even having doubts – I’d like to see any expansion in that realm ceased at a minimum. Often times what seems like a good idea has far ranging negative consequences which far outstrip the good intended or achieved, I think this is one of those.

  • I agree with Third that “most” might be incorrect, but it is at least close to correct. One cannot discount energy prices as a whole. They affect every part of our economy and profoundly so. We’re not just talking about whether people decide to travel for Memorial Day weekend, but the real cost of commerce is up at every step of the way – from manufacturing and farming costs, to the expense of transportation, to the retailer’s energy costs, etc. So, when we factor in excessive energy costs and that non-ethanol demand (domestic and global) for our grain grows every year as it is, and now we’re siphoning of 20% annually to ethanol production (a huge amount), we have indeed created a situation where demand is driving up the price. From what I understand, distiller grains are being used more and more, but it’s not the only route, and since the initial cost of grain is up and there is a market for distiller grains, so goes the cost of that as well.

    At one time, I thought pursuing ethanol usage was a wise and prudent measure, now I’m beyond even having doubts – I’d like to see any expansion in that realm ceased at a minimum. Often times what seems like a good idea has far ranging negative consequences which far outstrip the good intended or achieved, I think this is one of those.

  • After reading The Omnivore’s Dilemma the condition of food policy (esp corn) in the US is really messed up and crazy. The prevalence of corn in EVERYTHING and then thinking through the ramifications of how this affects us in this country and people in other countries is mind boggling. Give the book a read for a better understanding in Corn and the US. Does anyone else have any recommendations for other books to read along this line?

    enjoy Easter
    peace to all

  • After reading The Omnivore’s Dilemma the condition of food policy (esp corn) in the US is really messed up and crazy. The prevalence of corn in EVERYTHING and then thinking through the ramifications of how this affects us in this country and people in other countries is mind boggling. Give the book a read for a better understanding in Corn and the US. Does anyone else have any recommendations for other books to read along this line?

    enjoy Easter
    peace to all

  • Blackadder

    DarwinCatholic left a comment on this post at my other blog that I thought was quite striking:

    “With all the talk about the US “losing” in global trade, one doesn’t think about this, but it appears that the US is by far the biggest player in corn:

    The United States grew 42 percent of the world’s corn in during fiscal year 2006, producing 282.3 million metric tons (11.1 billion bushels). Other major corn producing countries in 2006 included:

    China -139.4 million metric tons (5.5 billion bushels)
    Brazil – 41.7 million metric tons (1.64 billion bushels)
    European Union – 48.3 million metric tons (1.9 billion bushels)
    Mexico – 19.5 million metric tons (767 million bushels)
    Argentina – 15.8 million metric tons (622 million bushels)
    India – 15 million metric tons (590.5 million bushels)
    source

    So if we take 25% of our corn out of food and into ethanol, that’s 10% of the global supply of corn. Yow.”

    Yow is right.

  • Blackadder

    DarwinCatholic left a comment on this post at my other blog that I thought was quite striking:

    “With all the talk about the US “losing” in global trade, one doesn’t think about this, but it appears that the US is by far the biggest player in corn:

    The United States grew 42 percent of the world’s corn in during fiscal year 2006, producing 282.3 million metric tons (11.1 billion bushels). Other major corn producing countries in 2006 included:

    China -139.4 million metric tons (5.5 billion bushels)
    Brazil – 41.7 million metric tons (1.64 billion bushels)
    European Union – 48.3 million metric tons (1.9 billion bushels)
    Mexico – 19.5 million metric tons (767 million bushels)
    Argentina – 15.8 million metric tons (622 million bushels)
    India – 15 million metric tons (590.5 million bushels)
    source

    So if we take 25% of our corn out of food and into ethanol, that’s 10% of the global supply of corn. Yow.”

    Yow is right.

  • Some interesting experimentation with bio-oil producing algae (some of which can be grown in saltwater!) is taking place and looking promising at this time.

    If only we would have spent 10% of our Iraq War budget on funding research for that (maybe offering a $10B tax free bounty for the team that makes it viable)…

    Even without the corn for ethanol, food prices would be rising inasmuch as everything it takes to make and everything it takes to ship the food has also gotten more expensive. And that is going to get worse before it gets better… The Indian Tata – the $2K, no frills (slightly more powerful than a golf cart) car is coming online in India this year…. I don’t think a crystal ball is needed to understand efforts like that are going to lead to more demand… A degree in economics is not needed to understand what that will do to the demand for fuel!

    So what is to be done? I think it is time to get serious about offering incentives for fuel efficency and alternative power… But so far no one is listening to me!

  • Some interesting experimentation with bio-oil producing algae (some of which can be grown in saltwater!) is taking place and looking promising at this time.

    If only we would have spent 10% of our Iraq War budget on funding research for that (maybe offering a $10B tax free bounty for the team that makes it viable)…

    Even without the corn for ethanol, food prices would be rising inasmuch as everything it takes to make and everything it takes to ship the food has also gotten more expensive. And that is going to get worse before it gets better… The Indian Tata – the $2K, no frills (slightly more powerful than a golf cart) car is coming online in India this year…. I don’t think a crystal ball is needed to understand efforts like that are going to lead to more demand… A degree in economics is not needed to understand what that will do to the demand for fuel!

    So what is to be done? I think it is time to get serious about offering incentives for fuel efficency and alternative power… But so far no one is listening to me!

  • Blackadder

    “I think it is time to get serious about offering incentives for fuel efficency and alternative power.”

    Having the government offer incentives for alternative power is what got us into the ethanol mess is the first place. Why would having the government do the same thing now end up any different? Even if congressmen were all only concerned about the best interests of the country (which they aren’t), why would we think that they were somehow uniquely qualified to know which possible alternative energy methods have the most promise?

  • Blackadder

    “I think it is time to get serious about offering incentives for fuel efficency and alternative power.”

    Having the government offer incentives for alternative power is what got us into the ethanol mess is the first place. Why would having the government do the same thing now end up any different? Even if congressmen were all only concerned about the best interests of the country (which they aren’t), why would we think that they were somehow uniquely qualified to know which possible alternative energy methods have the most promise?

  • why would we think that they [congressmen] were somehow uniquely qualified to know which possible alternative energy methods have the most promise?

    Because they learn a lot about these things in the process of taking money from the farm lobby, oil lobby, unions, and environmentalist lobby?

    😉

  • why would we think that they [congressmen] were somehow uniquely qualified to know which possible alternative energy methods have the most promise?

    Because they learn a lot about these things in the process of taking money from the farm lobby, oil lobby, unions, and environmentalist lobby?

    😉

  • BA – touche!

    I will stick by the fuel efficiency remark though – raising the CAFE standards might not actually do the trick… Making cars that get 55mpg+ tax free & tax deductible might be something to start with…

  • BA – touche!

    I will stick by the fuel efficiency remark though – raising the CAFE standards might not actually do the trick… Making cars that get 55mpg+ tax free & tax deductible might be something to start with…

  • BA – you seem to be generalizing from the particular: one bad government policy means that government policies, per se, are a problem?

  • BA – you seem to be generalizing from the particular: one bad government policy means that government policies, per se, are a problem?

  • Blackadder

    The ethanol subsidy, sadly, is not the only example of a government program that doesn’t quite live up to expectations.

  • Blackadder

    The ethanol subsidy, sadly, is not the only example of a government program that doesn’t quite live up to expectations.

  • “Having the government offer incentives for alternative power is what got us into the ethanol mess is the first place.”

    Great point. Having the government impose a disincentive for oil would be more effective. Revenue-neutral carbon tax!

  • “Having the government offer incentives for alternative power is what got us into the ethanol mess is the first place.”

    Great point. Having the government impose a disincentive for oil would be more effective. Revenue-neutral carbon tax!

  • “Great point. Having the government impose a disincentive for oil would be more effective. Revenue-neutral carbon tax!”

    Just to be contrarian… do you think that would have any positive effect on the problems of food costs that were mentioned by the OP?

  • “Great point. Having the government impose a disincentive for oil would be more effective. Revenue-neutral carbon tax!”

    Just to be contrarian… do you think that would have any positive effect on the problems of food costs that were mentioned by the OP?

  • Blackadder

    I’m rather cool toward the idea of a carbon tax (even a revenue neutral one), for the reasons given here.

    I’m also skeptical about raising CAFE standards, which, like the ethanol subsidy, haven’t exactly lived up to their hype.

    I know, I know. I’m just no fun at all.

  • Blackadder

    I’m rather cool toward the idea of a carbon tax (even a revenue neutral one), for the reasons given here.

    I’m also skeptical about raising CAFE standards, which, like the ethanol subsidy, haven’t exactly lived up to their hype.

    I know, I know. I’m just no fun at all.

  • TeutonicTim

    Makes perfect sense. Burn food when there are hungry people.

  • TeutonicTim

    Makes perfect sense. Burn food when there are hungry people.

  • Daniel H. Conway

    In a more crass evaluation-isn’t this just another way to throw government money towards the Red States? Like ditching Boeing for Aerobus contracts?

  • Daniel H. Conway

    In a more crass evaluation-isn’t this just another way to throw government money towards the Red States? Like ditching Boeing for Aerobus contracts?

  • “Makes perfect sense. Burn food when there are hungry people.”

    Not to be snarky, but that doesn’t 100% follow. I mean anyone who eats corn-fed beef knows that sometimes you use it in a fashion that doesn’t put the corn directly on the table but the calories of it are used for the creation of protein or in this case fuel. Not really an either/or proposition. That being said, the ethanol scam is not something I really am prepared to defend – it is neither as helpful nor as efficient as promised… so we are left holding the bag on this one…

    Again!

  • “Makes perfect sense. Burn food when there are hungry people.”

    Not to be snarky, but that doesn’t 100% follow. I mean anyone who eats corn-fed beef knows that sometimes you use it in a fashion that doesn’t put the corn directly on the table but the calories of it are used for the creation of protein or in this case fuel. Not really an either/or proposition. That being said, the ethanol scam is not something I really am prepared to defend – it is neither as helpful nor as efficient as promised… so we are left holding the bag on this one…

    Again!

  • “do you think that would have any positive effect on the problems of food costs that were mentioned by the OP?”

    Possibly. By ending subsidies and taxing carbon, we’d allow the truly cost-effective alternative fuels to survive. It may not be ethanol. We should also lift tariffs on the importation of ethanol. Specifically, Brazilian sugar-based ethanol.

    “I’m rather cool toward the idea of a carbon tax (even a revenue neutral one), for the reasons given here.”

    His arguments in order:
    1. Of course it’s politically infeasible. That’s no reason to oppose it though.
    2. Inability to internalize all externalities should not mean that we shouldn’t internalize any.
    3. His third argument is to wait until things get worse?! Why wait until just 2050 as he says we should. Why not wait until 2100 while we’re at it?
    4. We already tax fossil fuels so the added compliance costs would be minimal. Also, we can offset it, not with a tax reduce elsewhere but eliminate a tax altogether or eliminate a government program. But so what if there’s deadweight loss? That argument can only be used if a more efficient alternative can be offered that achieves the same goals. If the mere existence of “deadweight loss” is a deal killer, we’d have no government.

  • “do you think that would have any positive effect on the problems of food costs that were mentioned by the OP?”

    Possibly. By ending subsidies and taxing carbon, we’d allow the truly cost-effective alternative fuels to survive. It may not be ethanol. We should also lift tariffs on the importation of ethanol. Specifically, Brazilian sugar-based ethanol.

    “I’m rather cool toward the idea of a carbon tax (even a revenue neutral one), for the reasons given here.”

    His arguments in order:
    1. Of course it’s politically infeasible. That’s no reason to oppose it though.
    2. Inability to internalize all externalities should not mean that we shouldn’t internalize any.
    3. His third argument is to wait until things get worse?! Why wait until just 2050 as he says we should. Why not wait until 2100 while we’re at it?
    4. We already tax fossil fuels so the added compliance costs would be minimal. Also, we can offset it, not with a tax reduce elsewhere but eliminate a tax altogether or eliminate a government program. But so what if there’s deadweight loss? That argument can only be used if a more efficient alternative can be offered that achieves the same goals. If the mere existence of “deadweight loss” is a deal killer, we’d have no government.

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