Kevin A. Hassett
For years, the U.S. has heavily subsidized the production of corn-based ethanol. The global impact of that policy is beginning to lean toward the latter category.
There is no question that subsidies have had their desired effect: An enormous share of the grain crop is now devoted to energy production. How much? A new World Bank report states that "almost all of the increase in global maize production from 2004 to 2007 (the period when grain prices rose sharply) went for biofuels production in the U.S." Go back and read that sentence a second time. It is stunning.
One may hope and pray that labor markets and relief efforts have improved enough worldwide that another Bengal Famine won't occur even with food-price increases of a similar scale.
With the world population growing, and incomes rising, increased food production is necessary to maintain an acceptable level of basic human welfare. Since 2004, corn production available to individual consumers hasn't budged.
While corn isn't the only foodstuff out there, it is an important one, and a shortage has led to soaring prices for just about every grain. Again according to the World Bank, from February 2005 to February 2008, overall global food prices increased 83 percent.
That's causing significant distress in the U.S., especially among seniors with relatively fixed incomes. In the developing world, the risks are becoming extraordinary.
After all, in the classic economic study of the Bengal Famine, which stretched from 1942 to 1944, Nobel Prize winning economist Amartya Sen found that food-price increases were the fundamental cause of perhaps 3 million deaths. The higher prices led to starvation, because workers' wages didn't increase enough to allow subsistence.
Signs of Strain
Back then, the famine began in earnest when the price of rice increased about 61 percent between December 1942 and March 1943.
One may hope and pray that labor markets and relief efforts have improved enough worldwide that another Bengal Famine won't occur even with food-price increases of a similar scale. However, the signs of strain have become deeply disturbing.
On April 12, NBC Nightly News broadcast an interview with a Haitian man eating "hard discs made of butter, water, salt, and dirt." The man explained through an interpreter, "If we don't eat this, we'll die because we don't have anything else."
"It's Too Little"
Two days later, Louisiana Shary, a vendor in Haiti's capital, Port-au-Prince, explained in an interview with National Public Radio: "My children are hungry; things are too expensive. I can't give them food even if I sell all my merchandise. With the profits I get, I can't feed them on it. It's too little."
In Haiti, the food riots led to seven reported deaths, including the killing of a Nigerian officer in the United Nations peacekeeping force, and the ouster of Prime Minister Jacques Edouard Alexis.
The disorder was described by Haitian President Renè Prèval in a radio address on April 9, during which he pleaded for his people to stop the destruction: "People of Haiti, you who are suffering, you who have taken to the streets because of the high cost of living; I am asking you to cool down. Those who are spreading chaos, those who are destroying things, throwing rocks and burning people's property, the police will no longer be able to tolerate the disorder."
Only the Beginning
If food prices fail to go down in the coming weeks and months, the experience in Haiti might only be the beginning.
Food riots have, by my count, now occurred in nine countries around the world. The UN Food and Agriculture Organization said in a recent report that Burkina Faso, Cameroon, Egypt, Indonesia, Ivory Coast, Mauritania, Mozambique and Senegal have also seen food-related violence in recent weeks.
To what extent is ethanol to blame for the high prices? A new study by economist Thomas E. Elam of the consulting firm FarmEcon LLC explored the question.
The study, to be sure, was commissioned by livestock farming interest groups, yet it appears to rely on widely accepted economic models. Elam used his model to simulate what the price of corn today would be if the U.S. hadn't been subsidizing biofuels. He found that prices are about 50 percent higher than they would have been in a world without subsidies.
Energy independence is important, but biofuels have very limited potential in that regard. Elam states that it would take the entire world grain crop to make enough ethanol to replace just the U.S.'s annual consumption of gasoline. A solution to an excessive reliance on greenhouse-gas-emitting fossil fuels must be found, but biofuels aren't it.
During the Bengal famine, Sen found that the government failed to fight the catastrophe effectively because it didn't recognize that high prices were the true source of the problem. Cognizant of the lessons of history, then, the initial steps being taken seem prudent given the enormous risks.
For example, the U.S. has already committed an additional $200 million in food aid to help in the current crisis.
Still, we must also look ahead to policy changes that can have a longer-term positive impact. With that in mind, how can one possibly justify continued government subsidies for biofuels?
Kevin A. Hassett is a senior fellow and the director of economic policy studies at AEI.