Blame It On The Grain
If you’re currently blaming biofuels for the rise in food prices there’s good news and bad news. First the good news. You’re right. The bad news is you’re mostly wrong. Over at the NY Times Roger Cohen points to the major culprits involved in higher food prices…
Hundreds of millions of people have moved from poverty into the global economy over the past decade in Asia. They’re eating twice a day, instead of once, and propelling rapid urbanization. Their demand for food staples and once unthinkable luxuries like meat is pushing up prices.
At the same time, the rising price of commodities over the past year has largely tracked the declining parity of the beleaguered dollar. Rice prices have shot up in dollar terms, far less against the euro. Countries like China are offloading depreciating dollar reserves to hoard stores of value like commodities.
Food price increases are also tied to oil being nearly $120 a barrel. Fossil fuels are an important input in everything from fertilizer to diesel for tractors.
Over at The Glittering Eye Dave Schuler comes to a similar conclusion:
Factors in rising food prices include:
- Increased demand.
- Rising oil prices (the cost of oil accounts for something like 25% of the cost of grain production).
- Bad government policies.
- Speculation.
- Use of food crops for fuel production.
probably in about that order.
He, like me, is also of the opinion that diverting food to be processed into biofuel is a bad idea. We should be using marginal lands for farming grasses to convert to biofuel, converting agricultural waste to biofuel, and farming algae. The problem is that our subsidization of current biofuels is distorting the market demand for investment in these areas in addition to contributing to higher food prices. Unfortunately since these subsidies are helping prop up many American farmers the reality is that it would currently be political suicide for any member of the House or Senate to take up arms against them. And until food prices become high enough that subsidizing ethanol becomes impractical (as its one of the few things on Mr Schuler’s list we can actually control), a large enough breakthrough in the biofuel sources I’ve mentioned occurs therefore rendering subsidies irrelevant, or there is a major public outcry we’re stuck with them.
Of course if the price of beer keeps going up the latter may happen sooner than either of the former.
