The Wall Street Journal, in a wide-ranging round-up, has a page one story (subscription required) on the growing tensions between demand for food and fuel:
Soaring prices for farm goods, driven in part by demand for crop-based fuels, are pushing up the price of food world-wide and unleashing a new source of inflationary pressure.
The rise in food prices is already causing distress among consumers in some parts of the world -- especially relatively poor nations like India and China.
The article points out that biofuels are altering food economics, since ethanol and biodiesel can be made from corn, palm oil, sugar and other crops. Food inflation in Hungary is running 13 percent a year, in China, 6 percent, triple the rate of a year ago. China has only about 2-3 months of surplus food, meaning a bad crop could be disastrous.
Some economists say China will have to take moreaggressive steps to prevent future food problems. These changes could include allowing the proliferation of large -- but more efficient -- corporate farms similar to the ones that drove many small growers out of business in the U.S. in recent decades. Such a push would be extremely difficult for China because it needs to preserve jobs for the tens of millions of people who live in rural areas.
It's interesting though not surprising that large-scale farms are viewed as the unquestionable answer to this issue rather than the small-scale farms which are far more productive per acre of output. (Grains in large-scale farms go to produce other foods or animal feed rather than being eaten directly by people -- not a terribly efficient food chain or use of an abundant labor pool).
Meanwhile in the U.S.,
... consumers are likely to see higher prices at the supermarket for everything from milk to cereal to soda pop, since corn is used to feed livestock and make high-fructose corn syrup, a key ingredient in many soft drinks. A spokesman for the National Chicken Council, a poultry-industry group, recently testified to a congressional subcommittee that Americans should expect higher chicken prices because of what the group described as "the ethanol crisis."
The somewhat silver lining to the trend is that the higher prices "could help boost incomes for the rural poor in developing nations, who have been bypassed by gains in the manufacturing and service sectors." But I wonder if that's the way it will shake out -- whether the benefits will, indeed, trickle down, or whether the farmers will be bypassed on the upswing as they have been when prices tank.
- Samuel Fromartz