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