Monday, April 21, 2008

Food Crisis: No Free Lunch

With gasoline flowing toward $4 a gallon in the U.S., some Americans are trying to figure out what they can cut from their budget to remain behind the wheel. In other parts of the world, high prices for basic items are causing more trouble.

The prices of wheat and rice this year will have doubled since 2004, according to World Bank projections. Soybeans, sugar, soybean oil and corn are expected to be 56% to 79% costlier than in 2004. The bulk of the increases have come in the past year and can be attributed to the West's push to turn these crops into fossil-fuel replacements like ethanol. Food prices will likely remain overinflated until at least 2015, the Bank says.

The result of these rising prices is that 100 million people could slip back into poverty, erasing seven years' worth of gains, Bank President Robert Zoellick warned earlier this month. Food inflation and shortages have sparked riots from Egypt to the Philippines, and six people were killed in Haiti alone during nine days of related unrest there this month.

Soaring oil prices have made it more expensive to transport food products, though the World Bank estimates this and costlier fertilizer account for only 15% of the rise in food prices. Improved eating habits in developing nations are also increasing demand for grains – both for human consumption and to feed livestock, since rapid economic growth in places like China means more people have enough money to buy meat. But the Bank notes that "almost all" of the increased growing of one of the key crops, corn, "went for biofuels production in the U.S."

For a look at what the World Bank says about the food crisis, click here.

While the science of whether ethanol is an efficient use of corn, given its proportional removal from the world's food supply, is beyond me, the current world food crisis points out the fact that there are economic costs and drawbacks with every government mandate and subsidy. There is no such thing as a free lunch. When corn is turned into fuel, it cannot be used for food, and some who would eat that corn will have to buy other food (presumably at a higher price) or go hungry.


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