Biofuels quota => higher food prices? part II, US edition.
Q: How much of the US corn crop is used for ethanol?
I was surprised to find out today that about a third of the US corn crop is used to produce ethanol! That’s according to this USA Today article discussing the expected higher prices for corn this year. The article fingers biofuels mandates as one major contributor to the higher demand, and thus, the higher price of corn.
High energy prices have increased the cost of production. In addition, the U.S. and other nations have mandated increased use of biofuels, including corn-based ethanol. That has led to competition for acreage, contributed to a doubling of many grain prices and caused food riots in nations such as China and Pakistan.
With ethanol demand surging, U.S. farmers last year planted the largest corn crop since 1944. Even with the predicted decline in acreage, the 2008 crop could be one of the largest on record. Still, with the ethanol industry expected to claim about a third of the corn crop, and the USDA saying that stockpiles are lower than expected, there is the potential for shortages.
“Basically, we’re spending our tax dollars to raise the price of our food so we can subsidize the ethanol and big oil companies,” says Ray Atkinson, Pilgrim’s Pride director of communications.
Which is exactly my point in this post. Some well-intentioned government farm aid programs produce counter-productive incentives by helping one groups of people (farmers get paid to not plant) and hurt another group (higher food prices for consumers in the US and globally).
AP: Corn Hits $6 a Bushel on Tight Supplies
Thursday April 3, 6:56 pm ET
By Stevenson Jacobs, AP Business Writer
Corn Prices Jump to Record $6 a Bushel, Driving Up Costs for Food, Alternative Energy
NEW YORK (AP) — Corn prices jumped to a record $6 a bushel Thursday, driven up by an expected supply shortfall that will only add to Americans’ growing grocery bill and further squeeze struggling ethanol producers.
Corn prices have shot up nearly 30 percent this year amid dwindling stockpiles and surging demand for the grain used to feed livestock and make alternative fuels including ethanol. Prices are poised to go even higher after the U.S. government this week predicted that American farmers — the world’s biggest corn producers — will plant sharply less of the crop in 2008 compared to last year.
http://biz.yahoo.com/ap/080403/corn_at_6.html?.v=6