

  October 4, 2012

Fueling the Food Crisis

Tim A. Wise: Bio-fuels are driving up the price of food everywhere and costing developing countries billions


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Timothy A. Wise is the director of the Land and Food Rights Program at the Small Planet Institute. He also directs the Policy Research Program at the Global Development and Environment Institute at Tufts University. He is the former executive director of Grassroots International, a Boston-based international aid organization. He holds a Masters in Public Policy from Tufts' Urban and Environmental Policy and Planning Department. Tim is the author of Hogging the Gains From Trade: The Real Winners from U.S. Trade and Agricultural Policies



A new report, called Fueling the Food Crisis, says that the expansion of the American corn ethanol business is costing developing countries billions of dollars in increased food costs and something should be done about it. Now joining us is the author of that report, Tim Wise.


Joining us is Tim Wise. Tim is the policy research director at Tufts University's Global Development and Environment Institute. Thanks very much for joining us, Tim.


JAY: So tell us what the main findings of the report were.

WISE: Well, with the drought, we're experiencing the third major price spike in five years, what's now being termed the ongoing food crisis. And there's been a great deal of debate since that food crisis erupted five years ago about the contribution of U.S. biofuelsâbiofuels expansion in general, and U.S. ethanol expansion with corn in particular.

We asked the very straightforward question, well, how muchâwhat is the price premium that's being put on U.S.âon corn prices internationally because of the expansion of U.S. ethanol production? Some economists at Iowa state had done a very detailed modeling study that estimatedâit modeled how much higher are corn prices because ethanol expanded beyond its 2004 levels when the U.S. put in place their [incompr.] global fuel standard and other incentives to expand production. And production indeed took off. They estimated that the price increases reached 21Â percent of corn prices attributable to U.S. corn ethanol expansion. And we took those numbers and asked: well, how much more is this costing developing countries who are dependent on imports [crosstalk]

JAY: Right. You give an example ofâyour report, of Mexico. What you say: between 2006 and 2011, $1.5Â billion in extra food cost incurred by Mexico.

WISE: Right. Mexico. We did a study earlier that showed that Mexico, which is massively dependent on U.S. exports of corn for about a third of its corn supplies, that it costs an extra $1.5Â billion overall. Mexico's now spending something like $4Â billion in this year alone just to import corn from the United States. But this, this took that methodology and looked at corn-importing countries overall, and we found the kind of alarming numbers that you might expect: $6.6Â billion in total cost to developing countries over six years, and a very interesting mix of the countries that are the hardest hit, including some of the North African countries, where we've seen some of the heaviest social unrest.

JAY: But I also see Colombia as on that list.

WISE: Colombia's on the list. A lot of the U.S. free trade agreement partners are on that list, as they're very tied into the U.S. market for corn and other supplies.

Ironically, like Mexico, there are a number of countries on that list that have very highâthat are corn producers, produce a lot of their own corn. But their import dependence has grown dramatically. We looked at Guatemala, for example. Guatemala, its import dependence on corn has grown from since the early '90s from 9Â percent of its corn imported to 40Â percent now. That's a trend in Central America. It's a trend [incompr.] That has produced an ethanol premium. The extra cost because of the ethanol, the added ethanol price ofâ.

JAY: Now, by "added ethanol price" you mean because there's such an increased demand for corn biofuel, it's simply raising the price of corn for food.

WISE: That's right. I mean, corn, it's a demand shock to the international system. U.S.â40Â percent of corn in the United States is going to ethanol now, and that's a very recent phenomenon. It was only 5Â percent ten years ago. So that's a demand shock. That 40Â percent represents 15Â percent of all global corn production. So you're talking about taking 15Â percent of global corn production and feeding it to our cars.

JAY: And what do you want done about it?

WISE: Well, I think what needs to be done about it is dramatic reforms to developed-country biofuels policies.

Fortunately, two of the policies that in the United States fueled the ethanol expansionâa blender tax credit, essentially a subsidy, and the tariff protection against cheaper ethanol imports from countries like Brazilâthose were allowed to expire at the end of 2011. That's a good step.

But the main thing driving policy and prices right now and production is the Renewable Fuels Standard. And there are demands right now being articulated by everyone from livestock producers, who see their feed costs go up, to environmental groups, who see the increasing impacts on the land, and development groups like ActionAid, which has published this report, and they're calling for a waiver of the Renewable Fuel Standard, which mandates that a certain percentage, a certain share of our fuels, come from renewable sources.

Unfortunately, we have not moved up the value chain to moreâless disruptive and less environmentally destructive biofuels, such as cellulosic ethanol, etc. The vast majority of the RFS, the Renewable Fuel Standard, is being filled by corn ethanol. It's the leastâit makes the least positive contribution to greenhouse gas emissions, and it has the most severe impact on food prices, because corn is a food, it is a feed, which means that it affects dairy and egg and meat prices. So it has a secondary effect on food markets. And then the demand for land just makes it compete with soybeans, with wheat, with other products, driving up the prices for some of those as well.

JAY: And given the drought in the Western and Southwestern United States and the expected coming food price bubble, I assume this biofuels factor just exacerbates it.

WISE: Well, that's exactly right. I mean, what you end up having is this demand shock in the last six, seven years in global markets and in the U.S. market. Stocks have gotten incredibly thin, down to what are considered dangerous levelsâ15,Â 14Â percent of use. And in those thin markets, any impact, any supply impact has much more severe effects. And then those are exacerbated when speculators, like sharks, start swimming around the blood and smell the blood and start swimming around the markets and start flooding in, hoping to make a buck off of those price swings.

JAY: And now, on Wednesday night's debate, this was not a hot topic. Obviously, it wasn't mentioned at all. Is there any air or space between Romney and Obama's position on this question?

WISE: Well, I think President Obama is far more committed to green energy, right, in general, and Governor Romney is far less committed to having the government provide incentives for pretty much anything. So in that sense some of the incentives wouldâjust in the way that Governor Romney would back away from any environmental regulations, he can say he would consider the Renewable Fuels Standard an environmental regulation that he would not support.

JAY: Has he said anything specific about that?

WISE: No, but thatâwell, I was going to say: that said, everyone when they campaign in Iowa is for the Renewable Fuel Standard and for U.S. corn ethanol.

JAY: And many of his political allies are very involved in this whole corn ethanol business. A lot of the neocons are up to their eyeballs in corn ethanol promotion.

WISE: I mean, it's a veryâit's a shifting political landscape right now, because, well, like I said, among the biggest critics of U.S. ethanol policies are livestock producers, becauseâand they're very powerful, right? We're talking about Smithfield, Tyson, some of the biggies. And, you know, they're hit pretty hard when corn prices double. So that's the main ingredient in feed for most livestock, and it has a very significant impact. So the alliances, the business alliances on this question are changing.

I think what we really wanted to stress, though, in this study is that the most severe impactsâsevere in human termsâaren't felt by livestock producers; they're felt by the poor in developing countries and they're felt by vulnerable food-importing countries like Guatemala who don't have the budget to manage this kind of thing. I mean, that $91Â million I mentioned, that is what ourâour estimate of what it cost, what the ethanol premium in the last six years cost Guatemala. How big is $91Â million? Well, in a country like Guatemala, it's six times the level of U.S. agricultural aid. It's equivalent to U.S. food aid to Guatemala. And it's about 10Â percent of the entire agricultural development budget of the Guatemalan government. So you're sapping resources from social safety net programs, from agricultural investment at the same time that our government is also giving support, supposedly, to enhance those same things. So we're undercutting our own goals, we're preventing people from not only eating well, but also developing their own agricultural systems.

JAY: Right. Thanks very much for joining us, Tim.

WISE: You're welcome.






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