Shooting Ourselves in the Food

Ernesto Zedillo (Director, Yale Center for the Study of Globalization, and former president of Mexico) says we are Shooting Ourselves in the Food. Zedillo opens his Forbes.com piece by noting

Rising food prices are eroding the real income of people all over the world, undoing some of the last decade's progress in combating poverty.

Zedillo then makes the point

Protectionists haven't missed the opportunity to blame free markets for the crisis. The absurd goal of "food sovereignty" has made a comeback in a number of countries both poor and rich and is being used as an argument to resist and cancel the liberalization of agricultural markets. This position--most clearly exemplified by France--is ironic because agricultural protectionism, not freer markets, is what has aggravated the problem.

Zedillo goes on to say what nearly all economists have been saying, that the problem is not with markets but with government policy. He writes

Increasing demand for grains in emerging countries such as China and India and two successive years of severe drought in Australia, an important contributor to world supply, could never in and of themselves have caused the huge price hikes we're experiencing.

and he adds

Consequently, one must look at other factors to understand the spike in food prices: high energy costs, increased fertilizer prices and the weakening of the U.S. dollar. But to get the complete picture, one cannot ignore the severe protectionist distortions, both new and old, that have crippled the much needed supply response in world food markets.

By reducing the incentive for domestic farmers to increase production, controls over grain exports in some developing countries have worsened shortages instead of alleviating them, thus contributing to higher world prices. This has been the case, for example, with the recent restrictions in rice exports by China, India and Vietnam and wheat exports by Argentina and Kazakhstan.

Zedillo then joins the chorus of those making the point that the most damaging distortions in agricultural markets originate with polices in the rich countries.

There's little doubt that the present spiral in grain prices is closely linked to U.S. and EU policies enacted to boost production of biofuels. The American and European governments subsidize the production of biofuels, limit their import and mandate their use. The exact extent to which these policies have impacted food prices is still a matter of contention, but not even the most enthusiastic proponents of ethanol can deny that by inducing a greater allocation of agricultural resources toward biofuel production, the amount of grain available for food has been reduced. According to the World Bank, while global production of corn increased by 51 million tons from 2004 to 2007, biofuel use of corn in the U.S. alone increased by 50 million tons, thus leaving no margin to satisfy the increase of 33 million tons in global consumption for other uses during the same period. This explains why some respectable experts, such as the former chief economist for the U.S. Department of Agriculture and a top World Bank agricultural economist, have imputed a large proportion of the rise in food prices to the growing use of food crops for fuel.

Again we see biofuels as the major villan in the food price story. So why do so many governments, including New Zealand's, want to go down the biofuels route?