Agriculture […] American grain and food prices. American grain and food prices have increased do to the energy used in the making of ethanol fuel and the removal of food from the market. A Washington Post reporter notes, “Greater demand for corn has inflated prices from a historically stable $2 per bushel to about $4” (Rosenwald, 2007, p. D01). This is a burden on American consumers, and the attempt to save energy is actually creating increased costs and decreased food available to consumers.
Increased costs for other businesses
With the rising cost of corn, businesses that rely on corn for their survival are paying more for their supplies. Reporter Rosenwald continues, “That means cattle ranchers have to pay more for animal feed that contains corn. Those costs are reflected in cattle prices, which have gone from about $82.50 per 100 pounds a year ago to $91.15 today” (Rosenwald, 2007, p. DO1). Ultimately, that means that other businesses, like restaurants and supermarkets, are paying more for beef, and that results in higher prices for the consumers. Rosenwald notes, “The cost of rounded cubed steak at local Harris Teeters is up from $4.59 last year to $5.29 this year, according to TheGroceryGame.com, which tracks prices. The Palm restaurant chain recently raised prices as much as $2 for a New York strip. And so on” (Rosenwald, 2007, p. D01). This clearly results in higher costs for American consumers, at a time when incomes are increasingly lower due to inflation and the recession. A later article notes even higher prices. Another reporter notes, “Wheat trading on the Chicago Board of Trade on December 17th breached the $10 per bushel level for the first time ever. In mid-January, corn was trading over $5 per bushel, close to its historic high. And on January 11th, soybeans traded at $13.42 per bushel, the highest price ever recorded. All these prices are double those of a year or two ago” (Brown, 2008). It is clear this is bad news for American businesses and consumers, and many feel the solution is to limit the amount of corn that farmers plant, urging farmers to plant other profitable crops to keep demand level. Putting so much effort into corn while ignoring other types of grains is poor agricultural management, no matter how much short-term profit it brings the farmer. Eventually, there will be a glut of corn, that could lead to bottoming out of the prices, meaning the farmers will not see the return on their investment, and there will not be enough of the other grains to meet demand.
Rising food prices have lead to revolts and social unrest in many countries, including Mexico, Italy, and Pakistan, and they are leading to more global hunger, too. (See below for more information on global hunger. They are also leading to different decisions for dairy and cattle farmers. Increased costs are forcing them to reduce the sizes of their herds or sell their animals early to avoid feeding them as much, and that means decreased profits for them and higher prices for consumers. The United States should stop subsidizing corn and making it so profitable for growers. They are the only ones who are profiting from the increased cost of corn; just about everyone else is suffering.
Decreased demand for other products
In addition, with farmers planting so much corn, they have reduced the other types of crops they are planting. Rosenwald states, “The heightened demand for corn has decreased the supply of other grains, including soybeans, because farmers are shifting fields to make room for corn. Soybeans are a key ingredient in trans-fat-free cooking oils now in high demand as cities and counties ban fatty oils in restaurants and bakeries” (Rosenwald, 2007, p. D01). Because these other grains are in shorter supply, their prices are increasing, too. Some experts predict that the increased plantings will lead to a fall in corn prices; however, so far, that has not been the case. Rosenwald says, “Rick Tolman, chief executive of the National Corn Growers Association, predicts corn prices will level off, particularly because of a glut expected to hit the market this fall. Farmers have planted 90.5 million acres of corn, the most since 1945, according to the USDA” (Rosenwald, 2007, p. D01). A quick scan of prices today showed corn was nearly $6 a bushel in October 2010 and that prices were climbing because the 2010 harvest was smaller than 2009, which set a record (Neuman, 2010).
World Grain Reserves
In most countries of the world, there are grain surpluses, which the countries can call on if they run low on essential grains, like wheat and corn. However, grain production has not matched the need in the last decade. An Earth Policy Institute reporter notes, “In seven of the last eight years world grain production has fallen short of consumption. These annual shortfalls have been covered by drawing down grain stocks, but the carryover stocks — the amount in the bin when the new harvest begins — have now dropped to 54 days of world consumption, the lowest on record” (Brown, 2008). These world grain reserves are essential for developing countries with poor populations, and this drop is leading to more hunger and suffering, just so Americans can fuel their vehicles more efficiently. Brown continues, “The World Bank reports that for each 1% rise in food prices, caloric intake among the poor drops 0.5%. Millions of those living on the lower rungs of the global economic ladder, people who are barely hanging on, will lose their grip and begin to fall off” (Brown, 2008). Even worse, the number of the world’s hungry is climbing, rather than decreasing, and much of that climb is based on ethanol and other biofuels. Brown says, “But in early 2007 their update of these projections, taking into account the biofuel effect on world food prices, showed the number of hungry people climbing to 1.2 billion by 2025. That climb is already under way” (Brown, 2008). The United States must stop subsidizing corn production, and they should encourage planting of other grains, such as wheat and soybeans, which are necessary in so many products. Planting a variety of grains can help decrease world hunger, and help build up world grain reserves, as well.
Corn Subsidies are the Core of the Problem
Corn is one of the most subsidized crops in the country. A Rolling Stone reporter notes, “Corn is already the most subsidized crop in America, raking in a total of $51 billion in federal handouts between 1995 and 2005 — twice as much as wheat subsidies and four times as much as soybeans. Ethanol itself is propped up by hefty subsidies, including a fifty-one-cent-per-gallon tax allowance for refiners” (Goodell, 2008). So, as a result, Americans are paying taxes to see their own food costs rise. Reporter Brown continues, “The irony is that U.S. taxpayers, by subsidizing the conversion of grain into ethanol, are in effect financing a rise in their own food prices. It is time to end the subsidy for converting food into fuel and to do it quickly before the deteriorating world food situation spirals out of control” (Brown, 2008). Congress has mandated that ethanol conversion should increase, and that we should end our dependence on foreign oil, but the numbers do not look promising. The Rolling Stone reporter continues, “Our current ethanol production represents only 3.5% of our gasoline consumption — yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World” (Goodell, 2008). Clearly, this is not helping the country or the world. Another viable solution that does not threaten the world’s food supply should be found, and more research into ethanol and the way it is produced needs to be done before Congress mandates its’ production. Even environmentalists are urging more study. Another writer states, “This is an exploding new industry but we still don’t know a lot about it,’ says Jason Hill, a research associate in the Department of Applied Economics at the University of Minnesota. ‘We have to be very cautious as we move forward in biofuel production that we not have unintended consequences'” (Kenny, 2007). There also need to be limits on how much farmers produce, and there should be caps on how high corn prices can go, so that corn does not dominate the marketplace like it does right now.
In addition, the fuel that is supposed to be cleaner and better for our environment, may be actually adding to global pollution. Author Kenny continues, “Ironically, clear cutting and tilling land to make way for biofuel production could also push additional carbon into the atmosphere. This is partly because the country housing the world’s largest carbon sink — the Amazon rainforest — is also a leading global supplier of sugarcane and soy-based biofuel” (Kenny, 2007). Thus, Congress needs to study what it costs to grow and convert corn into ethanol, to see if we are really saving all that much energy in the process.
As all these studies show, ethanol is not exactly the environmental darling that many seem to think it is. It is actually helping to raise food prices, it is adding to world hunger, and producing it may be actually adding to global pollution rather than easing it. Much more study needs to be done on all the aspects of biofuels, including ethanol, and Congress needs to take action and stop subsidizing ethanol and other biofuels until they have been much more heavily studied. Biofuels could be the answer to our transportation problems in the future, but for now, they have far too many problems associated with them to be so heavily subsidized and promoted in America.
Brown, L.R. (2008, January 24). Why ethanol production will drive world food prices even higher in 2008. Retrieved December 1, 2010, from Earth Policy Institute: http://www.earth-policy.org/index.php?/plan_b_updates/2008/update69.
Decesaro, J. (2006, June). Farming bio fuels: Growing crops that can be converted into liquid fuels has come a new focus of America’s farmers. State Legislatures, 32, 14+.
Gasoline and corn prices are linked. (2008, August). USA Today (Society for the Advancement of Education), 137, 14.
Goodell, J. (2007, August 9). The ethanol scam. Retrieved December 1, 2010, from One of America’s biggest political boondoggles: http://www.rollingstone.com.
Johnson, R.S., & Runge, C.F. (2007, Fall). Ethanol: Train wreck ahead? Issues in Science and Technology, 24, 25+.
Kenny, a. (2007). The tricky question of bio fuels. Retrieved December 1, 2010, from Green Biz.com: http://www.greenbiz.com/news/2007/05/09/tricky-question-biofuels.
Neuman, K. (2010). Rising corn prices bring rears of an upswing in food costs. Retrieved December 1, 2010, from the New York Times: http://www.nytimes.com/2010/10/13/business/13corn.html.
Rosenwald, M.S. (June 15, 2007). The rising tide of corn. Washington Post, D01.
Schmit, T.M., Verteramo, L., & Tomek, W.G. (2009). Implications of growing biofuel demands on northeast livestock feed costs. Agricultural and Resource Economics Review, 38(2), 200+.
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