Egypt’s Ethanol Revolution: Bad US Policy Driving Up Worldwide Food Prices

  • Published on February 1st, 2011

Food riots may be a big part of the pro-Democracy push in Mid-Eastern countries like Tunisia and Egypt. But the root cause of spiking food prices is the US’s foolish ethanol policy – turning food into fuel.

When you’re poor and fed, you tend to stay quiet. But when you’re poor and starving, that’s when you have nothing to lose – and take to the streets.

Unintended consequences

More than 40% of the American corn crop was processed into ethanol last year, driven by billions of dollars in government subsidies and a mandate to blend ethanol into gasoline for our cars. And that is having a direct impact on food prices, which spiked to near record levels in January.

Food price spikes lead to global instability. The rebellion started in Tunisia, ending with the ouster of long-standing dictator Zine El Abidine Ben Ali on Jan. 14. Protests have spread to Egypt, Algeria, Morocco and Yemen.

Bloomberg reported from the World Economic Summit in Davos, Switzerland:

Higher commodity prices are “leading to riots, demonstrations and political instability,” Nouriel Roubini, the New York University economics professor who predicted the financial crisis, said on a Davos panel. “It’s really something that can topple regimes, as we have seen in the Middle East.”

“This protest won’t end in North Africa; it will spread in many countries because of high unemployment and increasing food prices,” Hamza Alkholi, chairman and chief executive of Saudi Alkholi Group, said in an interview during Davos.

The price of corn has surged 88 percent over the past year. That in turn has pushed wheat up – 114 percent – and Egypt is the world’s largest importer of wheat.

And  as the Technology Review pointed out in 2007, just before the first price spike you can see in that graph,

“The situation will only get worse, says David Pimentel, a professor in the department of entomology at Cornell University. “We have over a hundred different ethanol plants under construction now, so the situation is going to get desperate,” he says. Adding to the worries about corn-related food prices is President Bush’s ambitious goal, announced in his last State of the Union address, that the United States will produce 35 billion gallons of ethanol by 2017.

At that point, Ethanol was only sucking up 20% of the US corn supply.

A bi-partisan sensible cleanup

We almost got rid of this insane policy last year, when a mix Democratic and Republican senators, ranging from Diane Feinstein to Jim DeMint (but mostly from populous states on the coasts), ganged up on the farm-staters to kill the subsidy.

Subsidizing blending ethanol into gasoline is fiscally indefensible. If the current subsidy is extended for five years, the Federal Treasury would pay oil companies at least $31 billion to use 69 billion gallons of corn ethanol that the Federal Renewable Fuels Standard already requires them to use. We cannot afford to pay industry for following the law….

Eliminating or reducing ethanol subsidies and trade barriers are important steps we can take to reduce the budget deficit, improve the environment, and lessen our reliance on foreign oil. We look forward to working with you on responsible energy tax policy.

It was dead in the water… until farm-staters’ votes were needed to push through the Frankenstein monster tax bill in December. Suddenly, ethanol subsidies were back in.

-> Next page: Bi-partisan reckless stupidity

About the Author

Jeremy Bloom is the Editor of RedGreenAndBlue. He lives in New York, where he combines his passion for the environment with his passion for film, and is working on making the world a better place.
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  • edfwild

    Humm, while I don’t disagree with this, I do believe it is extremely short sighted. It doesn’t address the reason we convert corn to fuel in the first place. It doesn’t talk about Monsanto and their GMO’s that farmers are basically forced to buy new seed each year by contract. We forget that not that long ago corn prices were so low farms were going broke by the dozens per month. The aerospace, tech, stock and real estate bubbles have exploded and the US economy is hanging by a threat, threating to take down the world economy. There will be a major re-adjustment. Better get use to it. I am not talking about collapse, just a long slow decline. The world can not support 7-8 billion people!

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  • Jeremy,
    Your analysis of food prices is too simplistic. Its a really important issue, but corn ethanol is only one factor. The others include:
    1. Weather extremes, probably related to climate change
    2. High energy prices
    3. The failure of Europe to adopt farming technologies (e.g.) which could reduce their massive food import needs
    4. Rising populations in Africa (N and S)
    5. Rising standards of living in China and India

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  • While ethanol production is heavily subsidized and not environmentally sound practice, it is a subterfuge compared to the price fixing Futures market & derivatives. The real reason for food prices is not ethanol as much as it is WALL STREET and the commodities brokers (one who deals in commodities, ie corn wheat, food or non-food items in bulk) bidding up the price of food on the futures market! This is where a price of an item is bid on before the item, in this one example corn is actually in the market thus setting up a false price based on a pre-assumption of what the commodity brokers think the market will carry. A much more readily available example is the oil futures that raises the price of oil and gas because of perceived political problems in Tunisia and Egypt, or a hurricane prior to making landfall already , we see a rise in the price of a gallon of gasoline because of Futures markets effect..

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  • Egypt grows 40% of their food wheat and is the largest wheat importer in the world. Egypt wheat yields are 18 bushels per acre. California wheat yields are 80 bushels per acre. USA average wheat yields are 60 bushels per acre. The Nile Delta is the most fertile cropland in the world.

  • Starve to death three billion wanton procreators and the world will be a better place.

  • And what would you have done with the 40% of the corn crop if we didn’t make ethanol? I suppose we could burn it in wood stoves.

    Blaming the political unrest in the Middle East on ethanol is quite a stretch. It is poor country politics that prevents their farmers from producing their own food. We should base our assistance on the credibility of their farm programs to insure their farmers have minimal inputs to produce many times more crops per acre.

    To include a quote from that old Big Oil lackey at Cornell, David Pimental seriously reduces your creds.

    Hopefully, we will get rid of the blenders credit this year. I suppose we could also follow your advise and let Brazilian ethanol in free when they have surplus ethanol so they can disrupt our domestic ethanol marketing and put more of our farmers on welfare.

    You indicate that there is a great conspiracy. You are right, you are playing into the hands of Big Oil. When oil runs out, I hope you are not allowed to have any ethanol. Walking is healthy.

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