Is there a link between food price increases & government support of bio-fuels?

Factual Questions
1

I’ve heard this claim being made lately. Us there any substance to this charge?

2

Source: Technology Review - February 7, 2007

3

If we accept the above cite for the impact on the price of corn, the economics of supply and demand would imply an increase not just for products that use corn as an input, but also for substitutes for corn, such as wheat. As the price of corn goes up, there is an increase in demand for wheat. Assuming a constant supply of wheat, prices for it will go up.

4

As an increase in demand for corn goes up, there is a decrease in the supply of other foods we buy as farmers switch from growing them to corn. Prices are universally on the rise.

5

But the OP is whether this is a result of government support for biofuels. It’s clear that the demand for ethanol is on the rise, but is this a result of government actions?

6

It’s unlikely (and that’s about as definitive as can be said here) that the expansion in biofuels would have been so dramatic if not for government mandates and tax breaks.

That said, the total corn crop of the U.S. was about $35 billion before the ethanol market took off. In 2007 it increased to about $52 billion.

However, Americans spend more than $800 billion on food so the rise in corn prices is just a drop in the bucket of the total cost of food.

7

According to this AP story the cost of wheat has gone up more than 300% in less than a year.

Here is a good article from the BBC that discusses how the high cost of corn has made it very difficult for Mexicans to buy their tortillas.

8

The article doesn’t mention this, but corn prices are also high because many parts of the country were in drought conditions in recent years, so yields were down for all feed crops. I know a lot more people planted corn in 2007, but there would have been even more if not for the drought. That goes for all feed crops. Feed prices are up across the board.

Ten percent of farmers in Tennessee went out of business last year because of the drought.

I know that here, we didn’t have enough hay to make it through the winter, so we’ve been purchasing it for the past month or so. The pastures won’t dry up until the end of April, so we’ve got another six weeks of purchasing hay. According to my dad, prices for hay are high in general and the quality isn’t all that good.

9

And it drives the cost of fuel up, and the MPG down.

It’s nuts.

I really wonder if it makes much difference emissions wise in newer vehicles.