May 14, 2008 | posted by Michael Baxter in Climate change, Cost of food |

Be in no doubt, there is one overriding reason why food has shot up so high in price.  It’s down to food subsidies.    And perhaps even more seriously, biofuel subsidies. 

These subsidies are hugely damaging in so many ways.    The cost to the taxpayer is astronomical, they distort markets, but most seriously of all they put more-efficient producers at a disadvantage.  This in turn starves them of the funds required to invest in new technology.

Many argue that the solution to the rising price of food is new technology.  

Never mind that, in some parts of the world, more investment into existing technology would do wonders.

It’s not a new problem, but over the last year the debate has hit new heights, as attention has turned to biofuel.

At first it seemed like such a, well, nice answer.    Third World and developing countries hate the food subsidies imposed by the likes of the US, Japan and EU.  Yet, in these developed countries the subsidies are hugely sensitive.    Indeed right now, in the US the call is for more subsidies, not less.

So biofuel seemed like the perfect solution.  The subsidies could remain, farmers would be happy, but instead of producing food to eat, they produce food for us to quite literally burn, in our engines.

But that was last year.  Now the price of food is soaring, and many blame biofuel.

The truth is, biofuel is not the real problem – it’s subsidies that encourage the production of the wrong type of biofuel.

This is what the Global Subsidies Initiative (GSI) has to say on the matter.   Simon Upton, a director at the Initiative said, “All indications are that subsidies are being piled on top of one another without policy makers having a clear idea of their potential impact on the environment and the economy. Yet the potential for waste on a grand scale and some spectacularly perverse environmental outcomes is large.”

And the author of a recent report from the GSI entitled “Biofuels: At What Cost?” Doug Koplow said, “Biofuels are an extremely high-cost means for reducing greenhouse-gas emissions. Under optimistic projections, it costs some $500 in federal and state subsidies to reduce one metric ton of CO2-equivalent through the production and use of corn-based ethanol.

“That could purchase more than 30 metric tons of CO2-equivalent offsets on the European Climate Exchange, or nearly 140 metric tons on the Chicago Climate Exchange.”

Apparently, or so says GSI, levels of government support to biofuels appear out of proportion to their ability to satisfy domestic transport-fuel requirements. Current forecasts are that biofuels would account for less than 5 per cent of total transport fuel use in 2010.

Some biofuels, however, are better than others.    Of the main crops currently used for biofuel, the most efficient seems to be sugar cane, grown primarily in Brazil.   It costs much less to produce and saves more in carbon emissions than its main rivals, corn in the US and wheat in Europe.     Yet Brazil’s farmers are competing against 25 per cent tariffs from the US and 50 per cent tariffs from the EU.

Then again, even sugar cane is controversial.  At least some of the sugar cane is grown in land that was formally rain forest.

But there are biofuels that do seem to make sense –  switchgrass seems to top the list.    One of the big attractions of this potential source of energy is that it can be grown during times of drought and high temperature – and therefore can be grown on land not suitable for food crops.

Switchgrass also helps makes land more fertile, and reverses soil erosion.    It was once common in the land now called the US corn belt – and, setting aside its applications for biofuel, it is said that “by returning switchgrass and other perennial prairie grasses to the agricultural scene, many marginal soils will benefit from their deep root systems through increased organic matter levels, permeability, and fertility” – at least that’s what Wikipedia says.

The key point is this.  The argument put forward in favour of food subsidies is that they protect our source of supply, so that in times of shortages we still have the food crops, which, without subsidies, may have gone.

On the other hand, food subsidies make it harder for efficient producers to compete. Consequently, this means less investment for these more-efficient producers, and as a result their productivity is much lower than it would have been.

The irony is that in attempting to protect our future source of supply, food subsidies have actually contributed towards escalating food prices.

But here is some good news.  US politicians are waking up to this reality.  

At a recent hearing in US Congress, Sen. Susan Collins (R-Maine) said of the causes of rising food prices, “Many of these factors are beyond the control of mankind, much less governments.  By contrast, however, biofuel subsidies and mandates are within the control of governments.”

While Sen. Joe Lieberman (I-Conn.) said, “It may be that we’ve met the problem, and we caused it.”

It goes on.  Rep. Mike Doyle (D-Pa.) said corn ethanol was presented as “an almost Holy Grail solution” to dependence on foreign oil. “Any food that is used for fuel is food that won’t be used to feed our nation,” he said.

And finally, ”This isn’t a discussion about wanting to make the ethanol industry collapse,” said Sen. John E. Sununu (R-N.H.). “This is a discussion about stopping bad policy that has significant economic consequences, significant environmental consequences, and significant moral implications.”