There are a number of ways in which governments can help the poor put food on the table more cheaply: support the World Trade Organization’s efforts to cut tariffs on agriculture imports from other countries, stop subsidizing farmers at home, and allow farms to grow into larger agri-businesses rather than romanticize the smaller ones (which inevitably means more subsidies when smaller enterprises face a downturn).
But one way which won’t help is subsidizing ill-conceived feel-good policy, which helps neither the environment, nor those on low incomes.
Exhibit A is the Canadian and U.S. governments’ obsession with subsidizing ethanol and other supposed biofuels, this on the justification of a cleaner environment.
In Canada, the federal government plans to give $1.5 billion to biofuel producers over the next nine years, $200 million to farmers, and ante up another $500 million for large-scale production facilities.
Down south, biofuel subsidies will amount to between $6.3 billion and $8.7 billion US each year up to 2012, due mostly to a 51-cent-per gallon excise tax credit paid to U.S. refiners for renewable fuel production. The money is not exactly going to those in dire straits. One company, Archer Daniels Midland, has received $10 billion US in ethanol subsidies since 1980.
But there are unintended consequences from the ethanol craze.
For example, on the environmental question, gasoline-ethanol blends reduce greenhouse gas emissions by between five and 15 per cent depending on the mix. And one U.S. department of Agriculture study argued that ethanol made from corn yields 34 per cent more energy than what it takes to turn corn and other products into ethanol.
In other words, tally up the greenhouse gas produced by the fertilizers, farm equipment, transportation and other links in the ethanol production process and there’s a net reduction in emissions. Both sound like a reasonable environmental return.
In Canada, the Ministry of Natural Resources claims greenhouse gases are reduced by three to eight per cent depending on which product is used to produce ethanol, corn or wood waste. The department asserts that if fuel with 85 per cent ethanol were used in our automobiles instead of straight gasoline, net emissions would be reduced by up to 75 per cent.
But others dispute the net reduction claims including authors of a recent study from Princeton University. The Princeton study, released last month, argues that reports which buttress the American government assertions only analyzed one side of the equation — the reduction in greenhouse gases from the use of biofuels. But they omit the carbon cost of diverting land from existing uses into biofuel production.
The Princeton authors argue that ethanol-based gasoline would produce almost twice as much in greenhouse gas emissions as the gasoline it replaces due to land-use changes. For example, the study notes that the rush to produce ethanol means more forest or grassland will be ploughed under. That in turn will release much of the carbon formerly stored in plants and soils through decomposition or fires.
Tim Searchinger, a former Environmental Defense Fund lawyer and lead author of the study, recommends making more biofuel from products which will not require a diversion of more land, such as garbage.
Increased greenhouse gas emissions are one unintended consequence of producing ethanol from corn and other products. (Much of the ethanol in Brazil is produced from sugarcane, but that process produces fewer greenhouse gas emissions.)
Another is the effect upon the cost of food. And here’s where the poor, who spend much of their meagre incomes on food and shelter, get hammered.
For example, Mexico’s president, Felipe Calderon, capped tortilla prices in January 2007, this after a 700 per cent rise in the price of Mexican tortillas since 1994. That spike was driven in part by increased U.S. demand for ethanol and therefore corn, which is used for ethanol and tortillas.
And it’s going to get worse. Last year, U.S. President George W. Bush signed an energy initiative to increase ethanol use 10-fold over 10 years.
Neither that announcement, nor Canadian support for biofuels, should be welcome news to consumers who will see their food prices raised by ethanol-driven demand for grain.
Ronald Bailey, Reason magazine’s science editor, notes that “a partially biofuelled future may actually work technically one day and may produce more energy than it uses,” but it hasn’t yet arrived, and subsidies are not terribly helpful in achieving that desirable end. That’s because government cash is often directed to the wrong initiatives, distorts markets, and thus produces unintended consequences. Such as higher food prices for those who can least afford it.