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IBD Editorials
Posted 01/04/2012 06:39 PM ET
Energy Policy: There was a reason Congress let ethanol subsidies expire. Legislation mandating using corn as fuel will keep prices high. They will also increase poverty worldwide. Anyone remember the "tortilla riots?"
The Renewable Fuel Standards Program (RFS) was originally passed as part of the Energy Security Act of 2005. The Energy Independence and Security Act of 2007 expanded the renewable fuel standard for gasoline and the RFS mandates that at least 37% of the 2011-12 corn crop be converted to ethanol and blended with the gasoline that powers our cars.
"Producing ethanol for use in motor fuels increases the demand for corn, which ultimately raises the prices that consumers pay for a wide variety of foods at the grocery store, ranging from corn-syrup sweeteners in soft drinks to meat, dairy and poultry products," says the Congressional Budget Office. The RFS program ensures this mandate and ethanol production continues with costs being passed on to consumers at the checkout line and gas pump.
The mandate to burn food in our cars places our corn supply at risk to supply disruptions caused by drought and bad weather. Coming off the third-largest corn harvest in U.S. history in 2010, the carryover (unsold corn still in elevators), constituted only a two-week supply, the lowest level since the Dust Bowl of the 1930s.
According to the most recent USDA estimates, carryover stocks into the 2012 crop year will be only 6.7% of annual use, a level seen only once since 1950.
The RFS mandate requires a massive quantity of corn to be converted to ethanol each year regardless of price or available supply. In other words, our cars are now at the top of the food chain and if there's not enough to go around, its fuel first and food second.
According to a report prepared by 10 international organizations, including the World Bank and five different arms of the U.N., including the Food and Agriculture Organization and the International Fund for Agricultural Development, hardly right-wingers, increased bio-fuel mandates by governments mean the price of coarse grains could increase as much as 13%, oilseeds by 7% and vegetable oil 35% on average each year between 2013 and 2017.
As the American Enterprise Institute points out in a recent report, World Bank researchers Maros Ivanic, Will Martin and Hassan Zaman estimate that the ethanol-induced price spike between June and December 2010 forced 44 million people below the extreme poverty line of $1.25 per day and that price increases from 2005-08 forced 105 million people below the extreme poverty line.
When demand for bio-fuels caused the price of corn tortillas, a staple of the Mexican diet, to rise precipitously in late 2006 and early 2007, many in Mexico took to the streets in what became known as the "tortilla riots." The Mexican tortilla crisis came after a rise in the cost of corn, itself induced by growing ethanol consumption and booming demand in emerging countries.
They were the first in a series of disturbances that year to hit emerging countries from Haiti to Bangladesh as the cost of agricultural commodities, including wheat and rice, reached record highs as cropland was diverted to biofuel production.
We have created a market where even the slightest production disturbances could have devastating consequences for the world's poor and severe consequences for American consumers. The breadbasket of the world is even at risk of one day having to import corn.
The ethanol mandates should depart along with the ethanol subsidies that expired at the beginning of the year. It's time to stop putting food in our gas tanks.
