Food Inflation Knocking at the Door

The global economy is getting back on its feet, but so too is an old enemy: food inflation. The United Nations benchmark index hit a record high last month, raising fears of shortages and higher prices that will hit poor countries hardest. So why is the United States, one of the world's biggest agricultural exporters, devoting more and more of its corn crop to ethanol?

In 2001, only 7 per cent of U.S. corn went for ethanol, or about 707 million bushels.

By 2010, the ethanol share was 39.4 per cent, or nearly five billion bushels out of total U.S. production of 12.45 billion bushels.

Four of every 10 rows of corn now go to produce fuel for American cars or trucks, not food or feed.

This trend is the deliberate result of policies designed to subsidise ethanol.

This is increasing even as global food supply is struggling to meet rising demand. U.S. farmers account for about 39 per cent of global corn production and about 16 per cent of that crop is exported, so U.S. corn stocks can influence the world price. Chicago Board of Trade corn futures recently hit 30-month highs of $6.67 a bushel, up from $4 a bushel a year ago, says the Wall Street Journal.

Source: Amber Waves of Ethanol, Wall Street Journal, January 22, 2011.

For text: http://online.wsj.com/article/SB10001424052748703396604576088010481315914.html

For more on Energy Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=22

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 01 February 2011