Friday, January 25, 2013

Biofuels Aggravates Food Price Inflation, Promotes Hunger

One product of environmental politics has been to promote the politically privileged taxpayer supported, green energy industry.  Biofuels is part of the renewable green energy.

Yet the unintended effects of biofuels has not only been cronyism, but importantly, biofuels contributes to the constrains in food supplies that has led to higher prices and thus food shortages.

Here is the New York Times,
In the tiny tortillerias of this city, people complain ceaselessly about the high price of corn. Just three years ago, one quetzal — about 15 cents — bought eight tortillas; today it buys only four. And eggs have tripled in price because chickens eat corn feed.

Meanwhile, in rural areas, subsistence farmers struggle to find a place to sow their seeds. On a recent morning, José Antonio Alvarado was harvesting his corn crop on the narrow median of Highway 2 as trucks zoomed by.

“We’re farming here because there is no other land, and I have to feed my family,” said Mr. Alvarado, pointing to his sons Alejandro and José, who are 4 and 6 but appear to be much younger, a sign of chronic malnutrition.

Recent laws in the United States and Europe that mandate the increasing use of biofuel in cars have had far-flung ripple effects, economists say, as land once devoted to growing food for humans is now sometimes more profitably used for churning out vehicle fuel.

In a globalized world, the expansion of the biofuels industry has contributed to spikes in food prices and a shortage of land for food-based agriculture in poor corners of Asia, Africa and Latin America because the raw material is grown wherever it is cheapest.

Nowhere, perhaps, is that squeeze more obvious than in Guatemala, which is “getting hit from both sides of the Atlantic,” in its fields and at its markets, said Timothy Wise, a Tufts University development expert who is studying the problem globally with Actionaid, a policy group based in Washington that focuses on poverty.

With its corn-based diet and proximity to the United States, Central America has long been vulnerable to economic riptides related to the United States’ corn policy. Now that the United States is using 40 percent of its crop to make biofuel, it is not surprising that tortilla prices have doubled in Guatemala, which imports nearly half of its corn.

At the same time, Guatemala’s lush land, owned by a handful of families, has proved ideal for producing raw materials for biofuels. Suchitepéquez Province, a major corn-producing region five years ago, is now carpeted with sugar cane and African palm. The field Mr. Alvarado used to rent for his personal corn crop now grows sugar cane for a company that exports bioethanol to Europe.
Aside from biofuels, on the supply side, agricultural subsidies, agricultural protectionism and various forms of (regulatory) interventionism have all contributed to higher prices.

On the demand, aside from demand from China and emerging markets, global central banking relentless pumping of money have also pumped up prices of food. 

And given the acceleration of balance sheet expansions by global centrals in order to "promote aggregate demand" (in reality buoy asset prices to save the distressed too big to fail politically connected banking system and insolvent welfare states), the risks of food crisis, from the cumulative effects of interventions, cannot be discounted.

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