Food vs fuel wars just beginning
By Gioietta Kuo (China Daily)Updated: 2007-07-06 16:21 As well as providing food for humans, corn is used as feed for livestock - chickens, cows, pigs. So, as the US turns corn into ethanol, the world community experiences a food shortage. The result is higher prices for foods such as meat, milk, eggs and ice cream.
This inflation initially hit countries like China, India, Mexico and the US, containing 40 percent of the world's population. In China, compared with last year, January pork prices were up 20 percent, eggs up 16 percent. Food prices rose 3 to 4 percent just in the month of May compared with the corresponding period last year.
In India, food prices are now 10 percent higher than last year. In the US, the forecast for 2007 is that the price of chicken will rise 10 percent, eggs 21 percent, and milk 14 percent.
It should be noted that if the entire US corn crop were converted into ethanol, it would satisfy only 16 percent of US transport needs. The amount of corn that goes into the gas tank of a large automobile could feed one person for a year.
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When the market sees that it is more profitable to produce ethanol than sell the grain for food, the food industry will be in trouble. Since ethanol is used as a fuel, its price will be tied to the price of oil. As oil prices climb because of the impending world shortage of oil, ethanol prices will rise. As a consequence food prices will rise as well.
China also has an ethanol industry. It was basically started by Western investors who sought to profit by China's corn and the relatively cheap labor as the global price of oil climbs. The Chinese government has been quick to recognize the danger of diverting corn into ethanol. It has said that in view of the food shortage, ethanol production has no place in the Chinese economy.
How should governments proceed in what is a free market economy? The chief remedy is to reduce government subsidies to the ethanol industry. This seems difficult in the US Congress because of vested interests such as farmers who grow corn.
We are already seeing urban protests in countries such as Indonesia, Egypt, Algeria, Nigeria and Mexico. In Mexico, 75,000 people have taken to the streets forcing the government to initiate price controls on corn-based tortillas, their staple food.
It does not take a leap of imagination to see that continuing down the path of corn for fuel will lead to worldwide famine affecting billions of people. This will certainly lead to political instability, social unrest and general chaos.
The picture is not complete if we do not mention another major reason for the
global rise in food prices. That is the fast growth of the world population.
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