Biofuel schemes, particularly America’s corn-based ethanol programme, are a convenient scapegoat for higher world food prices, which adversely impact poor countries in which food can account for 50% of consumer spending. But protectionism and excessive global money creation are more important factors.
The US biofuels effort has, of course, diverted some cereal supplies from the world market, driving up prices. However, US agriculture subsidies generally encourage excessive food production, and much of the land devoted to corn-for-ethanol was previously uncultivated. So, although US biofuel subsidies are counter-productive to producing ethanol efficiently, they may only have pushed world cereal prices higher at the margin.
Outside the US and the European Union (EU), biofuel programmes have little effect on world hunger. The Brazilian scheme produces ethanol efficiently from sugar cane, which is marginal in providing nutrients for the hungry. If the US allowed free sugar cane imports, tropical production of sugar cane for biofuel use would increase, providing livelihoods for marginally employed poor people while having little impact on food production.
Rather, the biggest barriers to global food sufficiency are still the traditional ones.
The US, the EU and Japan subsidize their agricultural production, raising barriers to entry and lowering achievable output prices for more cost-effective producers from poor countries. Caribbean sugar producers, cotton growers in Mali and others find their employment opportunities restricted by these programmes.
Protectionism in the developing world also fuels food price inflation. Rice-exporting countries that suddenly ban exports cause global price spikes and supply shortages elsewhere. And governments, such as Argentina’s, that tax grain and meat exports push global prices higher, reduce availability and impoverish their own farmers. By contrast, free markets in agriculture shift production to the most efficient locales and offer the best chance of maintaining adequate supplies even with poor harvests.
Meanwhile, if money creation is excessive, with real global interest rates zero or negative, consumption can get artificially ahead of production. This is particularly the case in energy and commodities, where new supply takes time to bring on stream. US Federal Reserve chairman Ben Bernanke and other central bankers thus bear some of the responsibility for the current spike in food prices, too.