Wednesday, February 02, 2011

Ethanol and the Egyptian Riots

While it is undoubtedly true that political repression plays a large role in the riots that resulted in a change in leadership in Tunisia, and will undoubtedly unleash major repercussions in Egypt (we pray it will not lead to a government sympathetic to jihadists), one of the main reasons for the turmoil is the large increase of food costs in the Middle East and in other poor countries.

Unfortunately, American policies involving ethanol subsidies and deliberate dollar inflation bear much of the blame for these increases.

Even one of the main supporters of biofuels, Al Gore, now says that our policy of subsidizing the use of corn to make ethanol was a mistake.

Ethanol has been shown to be a net loss in energy; that is, it takes more energy to produce a gallon of ethanol than the energy derived from a gallon of ethanol. Why are we still subsidizing its production?

America and the Middle East Food Riots

By Steve McCann January 31, 2011 The American Thinker

Perhaps the most overused but most accurate term used to describe the policies and ideology of the American left is the "Law of Unintended Consequences." There is virtually nothing that these people espouse that, once put in place, has not had detrimental effects on either the people of the United States or the world.

Today there is a global food shortage and skyrocketing prices. This has become the underlying factor in the riots in Tunisia, Algeria , and Egypt, where up to 56% of a person's income is dedicated to the acquisition of food. These riots are now leading to the upheaval of governments and the very real possibility of the ascendancy of the radical elements into control.

While bad weather in various parts of the world is an element of the accelerating food prices, there are two other factors directly related to the United States and its policies.

First, because of the enormous deficits run up by the Obama administration and the Democrat-controlled Congress, the Federal Reserve has had to effectively print trillions of dollars, which have flooded the global market. Commodities are priced in dollars; consequently, emerging markets throughout the world, and the food sector in particular, are suffering from rapidly rising inflation.

The CRB food index is up an incredible 36% over last year. Raw materials are up 23%. Since 2009, the dollar has declined by over 13% against the Japanese yen and 25% against the Canadian dollar.

Larry Kudlow in the National Review writes in regard to the riots in Africa and the Middle East:

So I have to ask this tough question: Is Ben Bernanke's ultra-easy QE2 money-priming partially to blame.

But food riots in the North Africa/Middle East area are bumping smack into long-time resentment over autocratic government. If food is in fact the trigger for what may be a revolution in Egypt, then US monetary policy has to shoulder at least some of the blame.

An example of this inflation is in the price of wheat. The January 2011 future price is $335.00 per metric ton, while last year at this time, it was $157.00 per metric ton -- an increase of 113% . Not all of this increase is due to the inflationary impact of the dollar, but with global yields down due to weather factors, this foolish U.S. monetary policy has made matters needlessly worse.

The second factor in the overall global food situation is the American decision to, in essence, burn food in its cars, a policy championed by the environmentalists since the 1990s. In 2010, the United States produced 13.1 billion bushels of corn. Of that amount, 4.2 billion bushels went into ethanol ( 33% of total production). That represents for 2011, a year in which global stocks are down nearly 8%, over 14% of all corn grown in the world being used in the most inefficient manner possible -- being put into American gas tanks.

Thus, the future price of corn per bushel in January 2011 is $6.51, as compared to $3.84 in January 2010 -- an increase of nearly 70%
While the price spike is in part due to lower yields, had the corn destined for ethanol been put back into the overall corn stocks, the net effect would have been to offset this lower crop, and the global market would have maintained the 2010 price level despite the inflationary impact of the dollar.

There is no quicker way to foment riots and revolution than to deprive the populace of food, particularly when so much daily income goes into feeding oneself and one's family. The pictures we have seen in North Africa may well be repeated elsewhere throughout the world. This time, the "Law of Unintended Consequences" wrought by the policies of the American left and the Obama administration will be limited not only to the United States, but also to many throughout the world. If the riots in Egypt and the Middle East take a severe and radical turn, then the prospect of open warfare in that region, which will involve the United States, will become a near certainty.


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At 9:20 AM, Anonymous Anonymous said...

I know you've said that political turmoil was a large part of this and food prices only partly to blame, but...I disagree with the premise of the piece. In fact, if this was done by a liberal, you might have said there they go again - blaming and hating America.

While it may be true that the bang for the buck are not there with ethanol, and while it may be true that we are diverting some corn into ethanol rather than food, I don't think you can jump from there to blaming the US for Africa problems.
It's not our fault how much food we do or do not supply to anyone. This is true regardless of past activity level and current supply level.
In addition to the government heavy hand, bad employment opportunity probably play a larger role than from food shortage or high costs.

Not that this is completely relevant, but I'd make the point on subsidies in general that they often do not make sense initially but are intended to shore up the demand/supply equation until the market/technology mature. (Some day, ethanol might be more efficient or competitive)…not to mention the argument for less dependence on oil based supply - primarily foreign.

Also, it's been argued that the whole strategy of massive worldwide hunger "support" efforts thru very low nutrient products like corn and rice actually undermine longterm health and resistance to starvation of those recipients and is in fact counter productive.



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