03 March 2011

Maybe If We Don't Mention It No One Will Notice

When certain information proves challenging to entrenched political or ideological commitments it can be easy for policy makers to ignore, downplay or even dismiss that information.  It is a common dynamic and knows no political boundaries.  Global Dashboard catches the Obama Administration selectively explaining the causes for increasing world food prices: 
[O]n one aspect of US food policy, there’s a deafening silence: the government’s support for corn-based ethanol. Here’s Robert Hormats, Under-Secretary of State for Economic, Energy and Agricultural Affairs, on USAID’s blog:
World food prices have been increasing over the past six months, due to weather-related production losses and strong global demand. The growing demand is fueled by rapid expansion of middle-class households in emerging markets.
Er, hello? Let’s stop by at FAO’s Food Price Index (February data out today – you guessed it, another record high). What do they think is driving cereal prices upwards?
The increase in February mostly reflected further gains in international maize prices, driven by strong demand amid tightening supplies, while prices rose marginally in the case of wheat and fell slightly in the case of rice.
In other words, this is mainly about corn. And who’s the biggest corn exporter in the world? The United States.

And where is 40% of US corn production going this year? Ethanol, for use in US car engines.

And will USAID acknowledge that this has anything at all to do with spiking food prices? Don’t hold your breath.

24 comments:

  1. I used to blame the Ethanol mess on the election cycle that started in Iowa. Then late last year, the Obama administration EPA decided to allow E15 in the midst of a very tight market for grains. I cannot fathom a rational for this kind of non-sense in a world short on grains. The ethanol fuel movement seems to own this adminstration and and the Obama administration may soon find itself taking credit for increased food commoditity costs.

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  2. The entire American farm subsidy program depends on the national balance of power in both the Senate and the Electoral College. Both parties want to buy the votes of small farm states, and both fear giving up a single Congressional seat or Electoral College vote. Neither party is invested in the policies themselves at a national level - it's strictly politics for both. Here in Massachusetts, my representatives consistently vote against my direct interests in order to keep or gain party political power for themselves, or as trading chips to gain policy advantage.

    Why would a Boston Congressman vote to transfer my income to Nebraska or Iowa? In exchange for food stamp programs. We'll give your farmers money if you'll give our poor people free food. Now, why would they repatriate my money to Illinois and Nebraska for ethanol subsidies? For the greater glory of global warming. Thanks loads.

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  3. It's just another way to make agriculture subsidies more palatable: instead of criticism for kowtowing to the political clout of the farming states, now we're praised for saving the planet!

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  4. In 2007/8 I had a short stint with trying to understand the biodiesel industry. It nearly cost me my job, but led me to go back to school. So no harm no foul I suppose. There were a couple of things that happened at that time. First, Bush, just before leaving office signed in an energy bill and second, shortly thereafter, there was "food shortage." FAO was all over the media. It caused grain (I think predominantly wheat) to skyrocket in price. What seemed to have happened was this...
    China and if I remember correctly, Brazil, had increased its soy production substantially in previous years. American farmers upset that there was a declining market for soy started to go after the White House. People interested in climate change policy were all about biodiesel, ethanol, and the like at the time and Bush was expected to push forward an energy bill before he left. So, he did and it included a requirement that gasoline have a much higher percentage of ethanol, thereby increasing the demand for corn. The decision was blamed for the sudden food shortage and cost increase. Evidently, people are making the connection again. I don't remember if the bill said anything about biodiesel or soy specifically. I believe that soy and corn crops are interchangeable. You can grow one or the other depending on your fancy.
    Anyways, the reason I became problematic for the company that I was working for was that the company was charged with administering a biodiesel grant for the state and I was to facilitate the grant administration process. Money was being given out for the new production and transport of biodiesel. However, two things made me sit uneasy. One, applicants included very very large transporters of petroleum products and there was nothing in the grant rules or the legislation to keep them from getting the money. The grant was not intended to subsidize "big oil" in their ventures into the boutique biodiesel industry. And two, the problem that is referred to in your post. It seemed that the pressure to expand the biodiesel/ethanol market was having grave repressions throughout the food eating world. C'est la vie...

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  5. I still cannot fathom how anyone can say with a straight face that turning 30% of the corn in the world's largest grower into ethanol does not substantially affect food prices. Yet, I've seen quite a few people do just that.

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  6. We may have more to worry about than just ethanol- no-one is paying much attention to the expansion of the new wheat stem rust epidemic UG-99 hitting Africa and Asia. It was Borlaug's success against stem rust that launched the agriculture revolution and ended starvation for much of the planet-- seems it is coming back with a vengeance as UG99 can cause 100% crop loss. But there is nothing to subsidize and no climate issue involved--so not important.

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  7. What about the $2,300 billions printed in 2008-2009. Doesn't this have an impact on inflation?

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  8. Mark B.

    Thanks, from a Cornhusker! State budget's in passable shape, and my neighbors are fat and happy. Now how about some subsidies for our wind farms? Let's use that clean hydropower to expensively produce large amounts of CO2 in aluminum electrolysis plants, which we can recoup slowly whenever the wind gets around to blowing.

    And, in our defense, it blows a lot here. So to speak.

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  9. Major C.

    That's the bitch of it. It is not 'saving the planet.' Our ethanol produces only 1.5 units of energy for every one unit of input. Brazil's sugarcane ethanol -- made in the same plant as sugar -- produces eight (8!) units of energy for every one input. It is only because of our government's subsidies and unfair tariffs that make it profitable for the farmers.

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  10. Gasoline consumption is about 9M BBL/day. If substitute 5% ethanol for HC it reduces crude derived HC by 450K BBL/day. That's the flip side of the argument of why the administration wanted to increase it to 15%.

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  11. Warming land use change, increased phosphate pollution of our rivers, continuing spread of the “dead zone” in the Gulf, the potential for food riots overseas, an energy intensive process driving up the price of blended gas for the consumer, and an admitted (by Al Gore) small energy conversion ratio make clear the source for increased corn production diverted to ethanol - the subsidies money laundered to campaign contributions across all political boundaries.

    Although no longer in office, Gore’s was nevertheless a bit less forthcoming:
    "One of the reasons I made that mistake [i.e., ethanol as good policy] is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president."
    (see http://www.reuters.com/article/idUSTRE6AL3CN20101122)

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  12. #10 Mike
    why the administration wanted to increase it to 15%.

    The 2007 EISA LAW, not regulations sets annual requirements for biofuels.
    http://energy.senate.gov/public/_files/RL342941.pdf
    Renewable Fuels Standard (RFS). The law sets a modified standard that starts at 9.0 billion gallons in 2008 and rises to 36 billion
    gallons by 2022.


    The recession came along and E-85 capable new car sales plummeted and the amount of gasoline being sold hasn't risen as fast as expected.

    So there really isn't a way to get to the number of gallons required by law using just E-10. Since there aren't that many E-85 vehicles the local mini-marts aren't interested in installing E-85 pumps to accommodate a few vehicles.

    Cellulosic ethanol(made from corn stalks, wood chips, grass clippings) and advanced bio-fuels haven't worked anywhere nearly as well originally projected. So EPA makes up the difference with the food part of corn.

    Windmill, solar panel and biofuel sale people all like to spout perfect world performance.

    Our glorious leaders should know that nothing works as well in the 'real world' as it does in the laboratory.







    So there isn't any way for refiners to offer '100% real gasoline' and meet the gallon-age requirements set in law for bio-fuels without E-15.

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  13. "The increase in February mostly reflected…"

    Wow, that's really damning except:

    "World food prices have been increasing over the past six months"

    Hmmm... I'd go so far as to call that inconsistency conspicuous Roger.

    Quite apart from the fact that price changes are best attributed to changes in demand and supply, rather than baseline levels as the geniuses at Global Dashboard have done, food prices rises over the past six months are decidedly not "about maize".

    If I didn't know any better Roger, I'd say confirmation bias was getting the better of you.

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  14. -13-Majorajam

    Are you saying that maize has nothing to do with increasing food prices over the past 6 months?

    If so I disagree, see:
    http://www.agriculture.com/news/crops/cn-supply-price-projections_2-ar15140

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  15. No, I'm saying that the criticism of Hormats's statement, which is entirely reasonable and largely reflects the consensus of experts in these matters, is abject farce. It's best suited to people that are not serious in their animus for particular politicians and political factions. I'm also saying the fact that you didn't notice the rather glaring incongruence in the two supposedly inconsistent statements is not flattering.

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  16. -15-Majorajam

    The Global Dashboard post was criticizing US AID for not mentioning the fact that biofuels have played a role in food price inflation. It is that simple and is a perfectly fair criticism. Feel free to have the last words, as it is not really worth debating further, Thanks!

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  17. But the dog not barking is climate.
    Only CO2 obsessed partisans think that messing up our grain markets is going to 'help' climate.
    And this is also, I would submit, is a great example of why decarbonization is not actually always a good thing.

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  18. 40% seems fair. After all, governments bribe the farmers in the first place to grow the corn, the least they can do is pass ridiculous laws that ensure these crops will be purchased.

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  19. Majorajam,
    You are being obtuse.
    Ethanol- directly subsidized by tax payers- is distorting grain production and diverting substantial amounts away from food production.
    You are simply nitpicking around the margins because you do not like the implications.
    So what if Hormat is relying on a consensus? that is not an endorsement of Hormat's, or the consensus, is it?

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  20. Only CO2 obsessed partisans think that messing up our grain markets is going to 'help' climate.

    It probably makes the problem even worse; since the likely outcome is desperate farmers plowing large amounts of marginal land for food crops.

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  21. Roger,

    While I don't pretend to be an expert on food vs. fuel and the role that u.s. biofuel policies are playing in the current run-up on prices, I do think it's useful to consider this study by some folks at the World Bank who looked at the influence of such policies on the 2006-2008 spike. To whit:

    "This paper concludes that a stronger link between energy and nonenergy commodity prices is likely to be the dominant influence on developments in commodity, and especially food, markets. Demand by emerging economies is unlikely to put additional pressure on the prices of food commodities. The paper also argues that the effect of biofuels on food prices has not been as large as originally thought,but that the use of commodities by financial investors (the so-called financialization of commodities”) may have been partly responsible for the 2007/08 spike.

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  22. Marlowe,
    Since the World Bank is infected with AGW concerns, are they really likely to point out that converting substantial amounts of grain to fuel is harming the food markets?
    And as to the finacialization of grain, is not a large part of that to stabilize the feedstock prices of ethanol refiners?
    There is no way to avoid the conclusion that grain for fuel is a disaster except to ignore the facts.

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  23. Things change:
    http://online.wsj.com/article/SB10001424052748703438604575314833883953898.html
    "Two years after the global food crisis peaked, grain shortages are turning into surpluses that could create their own problems."

    I'd urge independent thinkers to read that link, especiqlly this....
    "The message," Mr. Basse says, "is that agriculture has always been and always will be a cyclical business."

    Corn for fuel was originally carried out to bury a surplus, ie a subsidy to farmers. Sugar to ethanol is much more sensible. I've not yet met an environmentalist who thinks grain for fuel is a good idea. However it is probably a good idea when there is a surplus and a bad idea otherwise. At one time there was a massive surplus in sugar too. No so anymore, happily for the farmers.

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  24. isn't just corn, it is all food commodities and commodities period

    quite a bit of this but not all is what happens when most major govt's all start trying to devalue their currencies and in this case the Fed is doing most of it

    There are consequences to really bad economic decisions and you don't just make a depression go away when a world record size housing bubble blows up in a couple of years. It took 8 years to inflate it, the resulting deflation doesn't dissipate very fast. What we are seeing is hard assets falling, luxury consumer goods falling, while necessities and commodities sky rocket in price. Quite a typical reaction, especially when the FED monetizes debt and the govt spends like a drunken sailor on leave.

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