In case you missed it, I posted Part I and Part II earlier, covering some of the causes of low food stocks.  This is yet another part of the low food stocks causes of food insecurity: biofuels

A common criticism of US corn subsidies (and sometimes dairy subsidies in Europe) is that overproduction of food in developed countries caused a surplus of cheap food that was dumped in developing nations undercutting the agricultural production of local producers.  However, the emphasis on biofuels and alternative energy forms shifted the purpose of production of certain commodities from food to fuel.

Tax credits and other subsidies have “succeeded in diverting about one third of the US corn crop to ethanol production and perhaps a similar amount of EU rapeseed to biodiesel.”[1] These incentives increase the demand for biofuels and as a result increase the demand for agricultural products needed to produce biofuels such as corn in the United States and sugar cane and soybeans in other ethanol producing nations.  According to the argument that food is used for fuel, land that would be used for food production for human consumption has been converted to food production for energy.

In the US, federal law encourages biofuels production by mandating that a ten percent blend of ethanol in every gallon of gasoline.[2] Corn production for biofuels is further encouraged by a tax credit of $0.45 per gallon of blended fuel (as of January 1, 2009, down from $0.51/gallon).  One further policy encouragement of corn production for fuel is a $0.59 per gallon tariff on imported ethanol (down from $2.00 per gallon prior to 2009). The tariff, coupled with the subsidy for ethanol production, makes corn ethanol more competitive in the US market, when it would not necessarily be without the government assistance.  These government policies encourage the production of corn to produce biofuels, even if corn is not the most efficient input for ethanol production (which a lot of research shows it’s not).

While corn and US subsidies are the largest target of the food for fuel argument, a similar argument can be applied to other ethanol producing nations such as Brazil.  As a result of increased demand for food products (i.e. corn, sugar cane, soy beans) to be used for alternative energy forms, the price of those commodities increases. It is argued that this drives up the cost of food as less food for human consumption will be produced causing the price to increase.  While the effects of biofuel production is still uncertain, It is generally accepted that the price of corn has increased, even by defenders of corn ethanol production such as former US Senator Tom Daschle, although he claims that consumers have not incurred the cost of these price increases despite the fact that the majority of corn produced in the United States is used to feed livestock.[3] Daschle’s point about the use of corn to feed livestock brings up another aspect of the demand side of the food price question.

So we’ve pretty much covered the basics of the supply side… Up Next: Increased Demand!

[1] Piesse and Thitle (2009) Three bubbles and a panic: An explanatory review of recent food commodity price events.  Food Policy. 34(2): 122.
[2] Farzad Taheripour and Wallace E. Tyner. “Ethanol Policy Analysis—What Have We Learned So Far?” Agriculture and Applied Economics Association 23(3): 7.
[3] Tom Daschle. “Food for Fuel? Myth versus Reality” Foreign Affairs. September/October 2007. http://www.foreignaffairs.com/articles/62845/tom-daschle-c-ford-runge-and-benjamin-senauer/food-for-fuel

Previously, in What Causes Food Insecurity: Part I, I started with one of the factors that contributes to low food stocks: natural disasters.

Today, I’d like to point out another common argument for low food stocks: Government Policy.

One such policy is an import or export bans.  In order protect their national interests, governments often place bans on importing or exporting certain commodities.  For example, in April of 2008, the government of Kazakhstan banned the export of wheat in order to curtail domestic inflation and prevent bread shortages that had occurred the previous year, essentially in an effort to “assure the country’s food security.” Here it’s important to note that Kazakhstan is a large producer of wheat in the region.  While intending to protect their own population, this action potentially hurts neighboring nations that depend on purchase of Kazakhstan’s exports for their food consumption.  See article quoted here.

Other policies that affects the supply of food are import or export tariffs.  In 2008, the government of Argentina increased export taxes on crops in order to keep food prices down.  The idea was that a tariff on exports would make that exported crop more expensive in other parts of the world as compared to Argentina since consumers generally incur the cost of tariffs.  Thus the supply of food would remain high and the price lower within the country.  Argentina’s tariff increase was followed by a wave of farmer protests.  You can read more about it in this NY Times article from 2008.

These policies can promote hoarding of food and can exacerbate a food insecurity problem.

For this reason, the US, EU, WTO and others promote the removal of trade barriers (i.e. tariffs) to ensure the easy flow of food (and other goods) across national borders.

Coming up:  Part III, the final section of low food stocks/more government policy, the current hot topic: corn production/subsidies and biofuels/food for fuel debate.