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US Biofuel Is Consuming Corn While The World Is Facing Food Crisis

By Countercurrents.org

11 October, 2012

The global food crisis is looming while the US ethanol program is pushing up corn prices by up to 21 percent as it is expanded to consume 40 percent of the harvest. The poor countries and the poor are paying the price. Biofuel is increasing hunger. Now is the time to call: “put food before fuel and people before cars.”

Africa is the most afflicted, with six of the seven states are at extreme risk. Fourteen countries are particularly vulnerable to the recent food-price increase. The food crisis reality questions the biofuel production and consumption.

Timothy A Wise, the Policy Research Director, Global Development and Environment Institute, Tufts University, Medford writes in an essay [1]:

“This is the third food price spike in the last five years, and this time the finger is being pointed squarely at biofuels. [T]he loss of a quarter or more of the projected US corn harvest has prompted urgent calls for reform in that country's corn ethanol program.”

Excerpt from the essay:

“As I showed in my recent study, The Costs to Developing Countries of US Ethanol Expansion, the US ethanol program pushed up corn prices by up to 21 percent as it expanded to consume 40 percent of the US harvest. This price premium was passed on to corn importers, adding an estimated $11.6bn to the import bills of the world's corn-importing countries since 2005. More than half of that - $6.6bn - was paid by developing countries between 2005 and 2010. The highest cost was borne by the biggest corn importers. Mexico paid $1.1bn more for its corn, Egypt $727m.

“Besides Egypt, North African countries saw particularly high ethanol-related losses: Algeria ($329m), Morocco ($236m), Tunisia ($99m) and Libya ($68m). Impacts were also high in other strife-torn countries in the region - Syria ($242m), Iran ($492m) and Yemen ($58m). North Africa impacts totaled $1.4bn. Scaled to population size, these economic losses were at least as severe as those seen in Mexico. The link between high food prices and unrest in the region is by now well documented, and US ethanol is contributing to that instability.

“The debate over biofuels has grown urgent since food prices first spiked in 2007-2008, ushering in a food crisis characterized by repeated jumps in global food prices. Prices for most staple foods doubled, fell when the bubble burst in 2009, then jumped again to their previous high levels in 2010-2011.

“Experts have debated how much of the price increases should be blamed on global biofuels expansion. Few argue now that the contribution is small. A US National Academy of Sciences review attributed 20-40 percent of the 2007-2008 price spikes to global biofuels expansion. Subsequent studies have confirmed this range for the later price increases.

“Why is the impact so large? Because so much food and feed is now diverted to produce fuel, and so much land is now used for biofuels feedstocks - corn and sugar for ethanol, soybeans, palm oil and a variety of other plants for biodiesel. This rapidly growing market was fuelled by a wide range of government incentives and mandates and by the rising price of petroleum.

“Nowhere is the impact clearer than in the diversion of US corn into ethanol production. Ethanol now consumes roughly 40 percent of the US corn crop, up from just 5 percent a decade ago. The biggest jump came after the US Congress enacted the RFS in 2005 then expanded it dramatically in 2007.

“A blending allowance of 10 percent for domestic gasoline added to the demand, a level now potentially being raised to 15 percent. These mandates for rising corn ethanol production combined with tax incentives to gasoline blenders and tariff protection against cheaper imports to create today's massive ethanol demand for corn.

“As corn prices rose farmers increased production, but not enough to accommodate the increased ethanol demand. So prices just kept rising and corn stocks just kept getting thinner and thinner. They were at dangerously low levels - about 15 percent of global use - when the first price spikes happened in 2007-2008. They are at 14 percent now.

“Corn is probably the most problematic feedstock for biofuels. In many parts of the world it is grown as food for human consumption, serving as the staple grain for some one billion people worldwide. It is also a key feed for livestock, giving it another direct link to the human food supply through meat, dairy and egg prices.

“US corn ethanol is particularly disruptive to international markets. The United States is by far the largest producer and exporter of corn in the world. That 40 percent of the US corn crop being put into US cars represents an astonishing 15 percent of global corn production. The diversion of so much corn from food and feed markets has produced a ‘demand shock’ in international markets since 2004.

“For our study of the impacts on corn importers, we relied on estimates of how much lower corn prices would have been if ethanol production had not grown past its 2004 levels. The impacts rose with ethanol demand, reaching an estimated 21 percent in 2009. We took those annual estimates and calculated the added cost each year, 2005-10, to the world's net corn-importing countries based on their net import volumes.

“The largest importer by far is Japan and the ethanol premium cost Japan an estimated $2.2bn. But our interest was developing countries because of their vulnerability to food price increases.

“Over the last 50 years, and particularly since the 1980s, the world's least developed countries have gone from being small net exporters of agricultural goods to huge net importers. The shift came when structural reforms in the 1980s forced indebted developing country governments to open their economies to agricultural imports while reducing their support for domestic farmers. The result: a flood of cheap and often-subsidised imports from rich countries, forcing local farmers out of business and off the land.

“In the price spike of 2008, the world's least developed countries imported $26.6bn in agricultural goods and exported only $9.1bn, leaving an agricultural trade deficit for these overwhelmingly agricultural countries of $17.5bn, more than three times the deficit recorded in 2000 ($4.9bn). This squeezes government budgets, strains limited foreign exchange reserves and leaves the poor more exposed to food price increases.

“Guatemala, for example, saw its import dependence in corn grow from 9 percent in the early 1990s to around 40 percent today. This in a corn-producing country, the birthplace of domesticated corn. According to our estimates, Guatemala saw $91bn in ethanol-related impacts, $28m in 2010 alone. How big an impact is that? It represents six times the level of US agricultural aid that year and nearly as much as US food aid to Guatemala. It is equivalent to over 10 percent of the government's annual expenditure on agricultural development. It is devastating for a country in which nearly half of children under five are malnourished.

“Of course, poor consumers are the ones most hurt by ethanol-related price increases, especially those in urban areas. Even in a net corn exporting country like Uganda, domestic corn prices spiked as international prices transmitted to local markets. Ugandans spend on average 65 percent of their cash income on food, with poor urban consumers getting 20 percent of their calories from corn purchased in the marketplace. More than half of Ugandans were considered "food insecure" in 2007, and the price spikes have only made that worse.

“US ethanol expansion has accounted for 21 percent of corn prices in recent years, so it has forced thousands of Ugandans deeper into poverty and hunger.

“The US and other Northern governments can stop fuelling the food crisis with reckless biofuels expansion. The US can waive the RFS mandates to allow tight markets to adjust in a year of drought. It can join the European Union in reconsidering its mandates. It can halt the increase in blending targets to 15 percent.

“On World Food Day, October 16, the FAO will convene an emergency meeting on the food crisis in Rome. Disgracefully, the G-20 group of economically powerful nations declined to convene its own emergency meeting, with a US spokesperson saying that ‘agricultural commodity markets are functioning’.

“Global leaders should take a strong stand in Rome against biofuels expansion, endorse the use of food reserves to cushion markets in times of drought, demand rules to end financial speculation on food commodities and restrict the land grabs that are driven largely by global demand for biofuels.”

Timothy A Wise concludes his essay with the following call:

“It's time we put food before fuel and people before cars.”

Citing global risk analysis firm Maplecroft’s food security index for 2013 Joshua Berlinger writes [2] in Business Insider on Oct. 10, 2012:

Africa is clearly the most afflicted, with six of the seven states at "extreme risk." Afghanistan was the only nation outside of Africa at extreme risk.

Food insecurity could also become yet another factor fueling the already tense relations and civil unrest in the Middle East.

At the current rate, Rabobank, a financial specialist in agro-commodities, estimates that prices of food staples could rise by as much as 15 percent by June 2013.

Another report [3] adds:

Sub-Saharan Africa, a region that depends largely on food imports, appears to be on the verge of a serious food crisis.

Food-price hikes have been witnessed across the globe. Indeed, the Food and Agricultural Organisation announced last week that food prices rose slightly in September, approaching levels reached during the global food crisis in 2008.

The World Bank has also said that its Food Price Index soared by 10 percent in July compared to a month earlier. Over the same period, prices of maize increased by almost 25 percent and wheat prices surged by around 30 percent.

The high proportion of expenditures on food, high rates of malnutrition and the recurrent crisis and insecurity -- particularly in the Sahel region -- are enough reason for increased concern and monitoring, the bank said.

Aside from the external factors, the presence of desert locusts and ongoing conflict in the Sahel region of West Africa have also been linked to the risk of a food crisis in the region.

In its April issue of Africa’s Pulse, the World Bank mentioned countries like Mali and Niger as already suffering from locust infestation and said there is potential for the swarm to move to neighboring countries such as Mauritania and Chad.

“The impact of this latest food-price increase in local markets across Africa is difficult to determine as current trends show significant variation in domestic prices across the region. In West and Central Africa, prices of cereals are still at record high levels owing to low production in 2011. However, better rains in 2012 have caused prices in the coastal countries to decline...” the bank said in the October edition of Africa’s Pulse.

A recent report by the FAO and USAID’s Famine Early Warning System Network lists 14 countries as being particularly vulnerable to the recent food-price increase. In many of these countries, maize and wheat provide 20% or more of the average household’s caloric intake. For Lesotho, the figure is as high as 69% and for Malawi it is 52%.

In Ghana, rice remains a major staple in particularly urban households which have a taste for imported rice. The country’s own self-sufficiency rate of rice is estimated at 33%. A huge chunk of the rice the country consumes is imported.

Information on the National Rice Development Strategy for Ghana reveals that the per capita rice consumption in Ghana is currently 38 kg, and this is expected to rise to 63kg in 2015 -- giving an aggregate demand of 1.68mn metric tones.

Ghana's demand for rice hovers around 700,000 metric tones, but the local Ghanaian rice farmer is able to produce only 150,000, leaving a deficit of 550,000 metric tones.

According to the Alliance for a Green Revolution in Africa, despite overall strong economic growth over the past decade, the agricultural sector in Ghana has declined from 51 percent to 36 percent of GDP.

The rural poor now account for almost three-quarters of all Ghanaians who live below the poverty line. Smallholder farmers, whose farms average just 1.2 ha, currently have limited opportunities to prosper.


[1] Al Jazeera, “US corn ethanol fuels food crisis in developing countries”, Oct. 10, 2012, http://www.aljazeera.com/indepth/opinion/2012/10/201210993632838545.html

[2] “Global Food Crisis Risk Is Soaring”, http://www.businessinsider.com/global-food-crisis-risk-is-soaring-map-2012-10

[3] GhanaWeb, “Food crisis looms”, Oct.8, 2012, http://www.ghanaweb.com/GhanaHomePage/business/artikel.php?ID=252488



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