Wednesday, August 08, 2007

Corny Economix

I did not think I'd have to follow up my last blog about Ethanol quite as soon as this. I wrote that biofuels, as they were being manufactured and utilized currently, were ill-conceived and short-sighted. I had thought that in the near to medium future I would be writing once again about the effects of ethanol farming as they became more visible and undeniable. I am compelled to address this issue again in the face of unmistakable dynamics that are already manifesting themselves and affecting various aspects of the economy.

Corn is one of the five major crops for which American farmers receive huge subsidies. This creates perverse incentives all around and is as harmful to poor farmers around the world as to the American farming culture. The recent popularity of ethanol as a fuel has seen an upsurge in corn prices as well as land prices. Since the ethanol fever shows no signs of abating in the near future, more people want to grow corn for which they can receive subsidies from the government and sell it at the rising prices to the ethanol producing facilities (see adjacent picture). This has lead to land grabs in states such as Iowa and Nebraska where land prices are at an all-time high. More and more land is coming under corn production.

This creates multiple unhealthy dynamics. It discourages the small farmer who concentrates on other crops. They don't receive subsidies and have to labor to bring fresh vegetables, fruits and other crops to the market. And this at a time of a growing obesity crisis in this country. We are telling people to eat healthier by incorporating more diverse produce, fresh fruits, vegetables and whole grains in their diet. But we still continue subsidies to big farmers practicing corn mono-culture which is also the mainstay of the processed food industry with its reliance on fructose.

By subsidizing corn the government encourages farmers to produce a lot of it which used to get dumped on other countries at an artificially low price, thereby hurting indigenous farmers globally (this continues for the other subsidized crops). In corn's case, in addition to the creation of fructose, we now have a new internal outlet for all the excess farmers can produce- Ethanol! Subsidies make the big rich mono-culture farms richer. They do not, in general, open up the market to small farmers who are held out of the market because they cannot afford the escalating land prices or because the big farmers, who own most of the land, charge high rents for it.

On the one hand having an additional outlet within the country for all the excess corn, means it won't be dumped on the rest of the world at lower than cost. However, this may make corn everywhere more expensive as demand for corn to make ethanol continues to outstrip supply and may eventually make corn costs too much as food and feed.

A researcher at Berekely, Tom Patzek, has written a technical paper on the corn biofuel and all its implications. He quantifies the sustainability and the renewability of this resource and finds that it falls short.

I wonder if demand for corn as a biofuel source will forcibly change the processed food industry when fructose becomes scarcer. I hope at least one good thing comes of it but I fear even that one good thing won't balance out all the negative outcomes that will result if we continue down this path of converting food sources into fuel. We don't need more subsidized resource-intensive mono-culture farms. The focus should not be on creating alternative fuel sources. The focus should be on reducing consumption of fuel altogether and finding alternative, energy-efficient and cost-effective ways of accomplishing growth and progress with good health.
Copyrights associated with the pictures can be viewed by clicking on each image which will take you to the copyright page.

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