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Sat. February 24, 2024
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Biofuel for Thought
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By George A. Pieler & Jens F. Laurson Soaring prices for widely-traded (and subsidized) commodities like rice, corn, soy, - the bedrock of the global food supply, have created a short-term, we hope, hunger crisis. For the poorest of the poor, food is becoming too expensive. For the most insular and corrupt governments, food aid is a vital instrument of political control or, in sunnier dictatorships, a powerful tool in public relations. High prices usually mean goods are scarce and demand is high, and there seems to be broad consensus that one factor is demand in the rising economies of Asia (China, India), as well as parts of Latin America, and even Russia. There is little agreement on how to alleviate this situation, except the option to mobilize the developed world to step up emergency food aid supplies: President Bush has asked the US Congress for $770 million in urgent food assistance, and the World Bank is coordinating with the UN to, among other things, beef up donations to the World Food Program. It is difficult to predict or second-guess market variations. Therefore long-term policies to ensure a robust, affordable global supply of basic foodstuffs provides for intense disagreement. Still, the food/energy interface clearly is a major factor in commodities markets. The legislation and subsidy-driven growth of so-called biofuels as an alternative or additive to fossil fuels has driven more cropland to be used for the production of crops for energy generation, rather than food. In the short run, surging energy costs also add to the cost of agricultural production and distribution. Defenders of biofuels are on the defensive and rising awareness of biofuels' unintended consequences. Even World Bank President Bob Zoellick calls biofuel production a "significant contributor" to the food crisis. The chorus of ethanol-dissenters grows louder with every cent more that Europeans pay for their milk, and with every new third world hunger story. The international development community, only occasionally accused of giving ideological cover to "big business" or to the stigmatized "free market" has contributed to the growing realization that biofuels may be one of the dumber of the grand, well intentioned ideas of this decade. This rhetorical concern has reached the political community too, yet that didn't stop Congress from larding up its new farm bill with new ethanol subsidies, coupled with a token hit at the old ethanol tax credit. Biofuels deserve to take some hits. They are grossly over-subsidized given their potential, and even climate change activists are coming around to the view they don't help much on greenhouse gas emissions and may even do harm. Ethanol, for example, has to be trucked around the US as it is too corrosive to flow through pipelines. Rainforest clearance and excessive monoculture rear their ugly heads. Yet biofuels are here to stay, not just because of the farm communities in Brazil, Europe, and the US, but because of the zeitgeist that says source-diversification is the Holy Grail of energy policy. In truth: the world can live with that, and still feed the hungry everywhere. Markets adjust and agricultural production for food, too, will adjust to meet global food demand. It will do so much faster though, and prevent much hunger and malnutrition, if governments stop manipulating agricultural production (including biofuels) with subsidies, tax breaks, tariffs, and regulatory demands. On that score, no one clamoring about the food crisis has clean hands. The World Bank has subsidized biofuel production through its International Finance Corporation for years, the US protects biofuels from import competition and subsidizes domestic production, and Europe and Brazil are heavy into agricultural-subsidies for energy production. Combined with the inspired subsidies doled out to EU farmers not to produce foods and the requirements for keeping land fallow, this brings price spikes that a truly free market could flatten much quicker. Western Agricultural policy is, sadly, a behemoth fighting with outdated means problems from years past. Once only a - very costly - regulating tool, its inflexibility now causes market distortions and supply shortages that do measurable, definitive harm. In light of this, Mr. Zoellick and his colleagues would do well to call for mutual disarmament in the biofuels-subsidy wars. Failing that, unilateral disarmament would be nice. At a time when free trade in agriculture is, perversely, on the defensive, the Doha Round ruined by unwillingness to phase down farm subsidies, a renewed commitment to freeing up world markets for foods, would be a great breakthrough. Alas, the only signals at the moment come from France and Germany, both of which want Africa to duplicate the EU's Common Agricultural Policy, - the most protectionist policy in the world. Indeed, this should help African food prices climb to new highs, and require Africans to subsidize their farmers to overproduce and dump the excess. Once a recipe to help inefficient European farmers produce non-competitively priced food, it isn't exactly a cure for starvation. For agriculture, as for most critical human endeavors, well functioning free markets are the answer. But who today will speak that truth on behalf of the world's poor? George A. Pieler is Senior Fellow with the Institute for Policy Innovation and Jens F. Laurson is Editor-in-Chief of the International Affairs Forum.

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