BIZCHINA / Weekly Roundup
Food vs fuel wars just beginning
By Gioietta Kuo (China Daily)
Updated: 2007-07-06 16:21
As well as providing food for humans, corn is used as feed for livestock
- chickens, cows, pigs. So, as the US turns corn into ethanol, the world
community experiences a food shortage. The result is higher prices for
foods such as meat, milk, eggs and ice cream.
This inflation initially hit countries like China, India, Mexico and the
US, containing 40 percent of the world's population. In China, compared
with last year, January pork prices were up 20 percent, eggs up 16
percent. Food prices rose 3 to 4 percent just in the month of May
compared with the corresponding period last year.
In India, food prices are now 10 percent higher than last year. In the
US, the forecast for 2007 is that the price of chicken will rise 10
percent, eggs 21 percent, and milk 14 percent.
It should be noted that if the entire US corn crop were converted into
ethanol, it would satisfy only 16 percent of US transport needs. The
amount of corn that goes into the gas tank of a large automobile could
feed one person for a year.
Related readings:
Crop bases to feed biofuel production Ban on use of corn for ethanol
lauded Imports of oil will rise by 10m tons Energy consumption up 8.4% in
2006
So there is direct competition between the 800 million people who own
automobiles and the world's poorest 2 billion. Basically there is now a
link between the food industry and the energy industry.
When the market sees that it is more profitable to produce ethanol than
sell the grain for food, the food industry will be in trouble. Since
ethanol is used as a fuel, its price will be tied to the price of oil. As
oil prices climb because of the impending world shortage of oil, ethanol
prices will rise. As a consequence food prices will rise as well.
China also has an ethanol industry. It was basically started by Western
investors who sought to profit by China's corn and the relatively cheap
labor as the global price of oil climbs. The Chinese government has been
quick to recognize the danger of diverting corn into ethanol. It has said
that in view of the food shortage, ethanol production has no place in the
Chinese economy.
How should governments proceed in what is a free market economy? The
chief remedy is to reduce government subsidies to the ethanol industry.
This seems difficult in the US Congress because of vested interests such
as farmers who grow corn.
We are already seeing urban protests in countries such as Indonesia,
Egypt, Algeria, Nigeria and Mexico. In Mexico, 75,000 people have taken
to the streets forcing the government to initiate price controls on
corn-based tortillas, their staple food.
It does not take a leap of imagination to see that continuing down the
path of corn for fuel will lead to worldwide famine affecting billions of
people. This will certainly lead to political instability, social unrest
and general chaos.
The picture is not complete if we do not mention another major reason for
the global rise in food prices. That is the fast growth of the world
population.
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