Biofuel’s False Promise

Over the past year, consumers from Mexico to Indonesia have been protesting the increasing cost of staples such as corn and soybeans, which has been linked to the rising demand for biofuel. And while Americans have been largely sheltered from rising food costs that eat into their income, there are signs that the rush to convert commodity crops into fuel may be starting to have an impact on the food budgets of poor American consumers as well.

As way of background, the ever-expanding number of ethanol plants in the U.S. are consuming greater and greater shares of domestic corn supplies. This has pushed corn prices to a record high, and as farmers shift their crops to keep up with the increasing demand, they are planting fewer acres of wheat and other crops, pushing up prices for those staples as well.

Poor people in developing countries by and large bear the brunt of increased prices for these staples, but poor American consumers are starting to feel the pinch as well, in the form of higher prices for milk and eggs, which rose 29 percent and 36 percent last year, respectively (corn forms the basis of the feed used for cows and chickens). Since corn is also widely used in most processed foods, the cost of everything from hot dog buns to soft drinks may start to rise as well. And although Americans spend a relatively small amount of their incomes on food, the poor, who already pay a disproportionate amount of their paychecks at the grocery store, will be impacted the most, especially since they tend to consume mainly processed foods. While the extent to which biofuel is alone responsible for resulting price increases at the supermarket is still being debated, it is undeniable that it is having an impact.

As the IMF reports, "until new technologies are developed, using food to produce biofuels might further strain already tight supplies of arable land and water all over the world, thereby pushing food prices up even further."

So what's to be done? The rising demand for corn-based ethanol and other biofuels has meant the expansion of crops that already depend on government subsidies. Eliminating subsidies and tariffs on these crops would have the greatest impact in the short term, and would help lower-cost foreign producers get in on the game, ultimately lowering prices. But ditching subsidies is never a politically popular idea, and is even more unlikely with the country heading into an election year (and possibly a recession). In addition, there is growing alarm about the ultimate environmental impact growing biofuel crops may have, to the extent that the EU has proposed restrictions on biofuels, and Brazil is discussing a moratorium on burning large swaths of the rainforest to grow sugarcane used for fuel. Other ideas, like a radical shift in the way we produce and eat our food in this country, seem equally unlikely and politically unpopular. In the meantime, poor Americans may have to fork out increasing amounts of their take-home pay to put food on the table.

Biofuel may be able to lead us out of the wilderness of foreign energy dependence, but at what cost?