Monday, December 10, 2007

Unintended Consequences

From the December 8-14th Economist:
Since the spring, wheat prices have doubled and almost every crop under the sun—maize, milk, oilseeds, you name it—is at or near a peak in nominal terms. The Economist's food-price index is higher today than at any time since it was created in 1845. . . Even in real terms, prices have jumped by 75% since 2005. . .

[T]he rise in prices is also the self-inflicted result of America's reckless ethanol subsidies. This year biofuels will take a third of America's (record) maize harvest. That affects food markets directly: fill up an SUV's fuel tank with ethanol and you have used enough maize to feed a person for a year. And it affects them indirectly, as farmers switch to maize from other crops. The 30m tonnes of extra maize going to ethanol this year amounts to half the fall in the world's overall grain stocks. . .

With agflation, policy has reached a new level of self-parody. Take America's supposedly verdant ethanol subsidies. It is not just that they are supporting a relatively dirty version of ethanol (far better to import Brazil's sugar-based liquor); they are also offsetting older grain subsidies that lowered prices by encouraging overproduction. Intervention multiplies like lies. Now countries such as Russia and Venezuela have imposed price controls—an aid to consumers—to offset America's aid to ethanol producers. Meanwhile, high grain prices are persuading people to clear forests to plant more maize.

3 comments:

Iowa_John said...

But ethanol subsidies are our caucas-given right!!

Seriously though, I attended a lecture by a Des Moines based private equity fund partner back in 2005. His attitude was that it was going to be raining money in Iowa for the next few years-looks like he was right beyond his wildest dreams. Looks like I should have gone into finance after business school....

Carl said...

I get it that it's politically impossible to end crop subsidies. But now globaloney warming is an excuse to increase them. So I'm ok with Iowa_John's idea: the least we can do is profit from bad policy.

obloodyhell said...

I've long been wondering what was going to be said when our food surplus stopped going out to the world and into our fuel tanks...

To say nothing of the dtupidity of turning the product of high-energy agriculture into... a less efficient source of energy.