Ethanol: Unintended Consequences
When the idea of biofuels was first suggested, it should have been obvious that increased demand for crops destined to become fuels would raise their price. In the U.S.A., the crop of choice has been corn. After several years of concerted building effort, the production of ethanol is now substantial. In 2007, about 30% of the American corn crop went to ethanol. Not surprisingly, the price of corn has doubled.
Since corn became expensive, other grains were substituted where possible. Their price too has increased. Since corn (maize) is a globally traded commodity, the world price has gone up, as has the price of wheat and of rice. Not all of this was due to the diversion of a food crop to non-food purpose. However, a “perfect storm” has occurred. The demand for biofuels is competing with the demand for food at the same time as major flooding in the U.S. “corn belt”, plus drought in Australia and poor harvests in Argentina presage a reduction in corn harvests worldwide. Just to make matters worse, a major storm devastated the main rice producing region in Burma, while Zimbabwe, once a major maize exporter, is now an economic basket case which imports maize! The IMF (International Monetary Fund) reckons that world food prices (inflation adjusted) have nearly doubled in 7 years. The great bulk of this increase has occurred over the last year.
Imagine an auction where bags of grain are being sold. The auctioneer asks for bids. On one side there is a hungry worker from Bangladesh, and on the other a prosperous manager who wants to fill up his SUV. Whose bid do you think will win?
Even if we do not use a food crop to fill our tanks, demand for biofuels from wealthy countries has caused farmers in poor countries to switch land from food crops to biofuels! Sometimes, this causes the clearing of tropical forest to make room for fuel crops. Sometimes it displaces peasants without secure land tenure from their subsistence farms to make way for biofuel plantations owned by well connected wealthy people. These problems became so acute that the European Union began (January 2008) to rethink its requirement for 10% biofuel content in all gasoline and diesel.