Saturday, January 29, 2011

How Ethanol Subsidies Make It Harder to Feed People

One fundamental economic fact of life is that we get more of whatever we subsidize. Since 2001 the U.S. Government has poured gobs (that is a technical term that means officially, a lot) of money into the production of ethanol as an alternative energy source. The Wall Street Journal has a brief, yet informative editorial explaining some of the consequences of such a policy. In 2009 the United States produced five times more ethanol than it did in 2000. To produce more ethanol, we use more corn. As the editorial documents:
In 2001, only 7% of U.S. corn went for ethanol, or about 707 million bushels. By 2010, the ethanol share was 39.4%, or nearly five billion bushels out of total U.S. production of 12.45 billion bushels. Four of every 10 rows of corn now go to produce fuel for American cars or trucks, not food or feed.

All of this for no net environmental benefit. Even Al Gore has admitted that he championed ethanol subsidies to get votes from farmers, not because ethanol really benefited the environment.
As the Wall Street Journal piece concludes:

Now if the demand for corn increases because more people are subsidized for producing ethanol, the price of corn will increase. Higher corn prices will raise costs of producing other goods like beef or tortillas that require corn as a factor of production. It would be one thing if ethanol was the use for corn people valued the most. Because this use is driving by subsidies, however, we know this is not the case.
At a time when the world will need more corn and grains, it makes no sense to devote scarce farmland to make a fuel that exists only because of taxpayer subsidies and mandates. If food supplies tighten and prices keep rising, such a policy will soon become immoral.

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