Blogs & Comment

Food inflation and ethanol subsidies

Riots are breaking out around the world in response to escalating food prices. In North America, the U.S. Department of Agriculture predicts food inflation will surgeduring the second half of 2011 as record-level prices at the farm gate for corn, wheat, oilseeds and other foodstuffs filter through the supply chain.
In this kind of environment, one has to wonder why the U.S. government is heavily subsidizing the production of ethanol from corn. Its considered a clean fuel but perhaps otherapproaches are better to use, especially considering the unwanted side effects of producing corn-based ethanol.
About 36% of the corn crop grown in the U.S. goes toward making ethanol, constituting a significant source of demand and price pressure. Farmers have increased plantings butinventories remain tight and additional increases in corn prices are expected.
Skyrocketing prices for corn and other staples put the nutritional requirements of millions of familiesat risk. Many peoplewould say thisis anunwarranted sacrifice given there are other ways to switch to renewable energy sources.
For another, the production of ethanol itself is not a very environmentally friendly industry. Corn depletes the soil of nitrogen and so fertilizer is spread every year by many farmers. Gas-powered machinery is used for planting and harvesting.