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Ethanol and agricultural subsidies: corporate welfare no one wants to touch

America is generally short of news outlets that take a genuine world perspective, which is why--as I noted in my post on the budding relationship between France and China--we miss so much of what's really going on in the world.

For that--even though the graphics are pathetic and the stand is conservative enough to embarrass Thurston Howell III--I read The Economist.

Among other advantages, the magazine is actually written by people who know something about economics rather than the glib but essentially puppet-like market analysts we constantly see on TV.

Recently The Economist took on the issue of soaring food prices worldwide, attributing them to:

...long-running changes in diet that accompany the growing wealth of emerging economies—the Chinese consumer who ate 20kg (44lb) of meat in 1985 will scoff over 50kg of the stuff this year. That in turn pushes up demand for grain: it takes 8kg of grain to produce one of beef.

But the rise in prices is also the self-inflicted result of America's reckless ethanol subsidies. This year biofuels will take a third of America's (record) maize harvest. That affects food markets directly: fill up an SUV's fuel tank with ethanol and you have used enough maize to feed a person for a year. And it affects them indirectly, as farmers switch to maize from other crops. The 30m tonnes of extra maize going to ethanol this year amounts to half the fall in the world's overall grain stocks.


There's more to say about those ethanol subsidies in specific and statist intervention in general:

Whatever the supposed threat—the lack of food security, rural poverty, environmental stewardship—the world seems to have only one solution: government intervention. Most of the subsidies and trade barriers have come at a huge cost. The trillions of dollars spent supporting farmers in rich countries have led to higher taxes, worse food, intensively farmed monocultures, overproduction and world prices that wreck the lives of poor farmers in the emerging markets. And for what? Despite the help, plenty of Western farmers have been beset by poverty. Increasing productivity means you need fewer farmers, which steadily drives the least efficient off the land. Even a vast subsidy cannot reverse that.

With agflation, policy has reached a new level of self-parody. Take America's supposedly verdant ethanol subsidies. It is not just that they are supporting a relatively dirty version of ethanol (far better to import Brazil's sugar-based liquor); they are also offsetting older grain subsidies that lowered prices by encouraging overproduction. Intervention multiplies like lies. Now countries such as Russia and Venezuela have imposed price controls—an aid to consumers—to offset America's aid to ethanol producers. Meanwhile, high grain prices are persuading people to clear forests to plant more maize.


A variety of studies from the World Bank actually indicate that American, Canadian, European, and Japanese agriculture (agribusiness, really) farm subsidies are a major cause of economic hardship for small farmers in the developing world--already at a disadvantage with respect to acreage, pesticides, and farm equipment, to compete with affluent nations that can afford to throw billions in tax dollars at agribusinesses to purchase loyalty in presidential election years.

Dismantling the corporate welfare that is agricultural subsidies (only a tiny fraction of which goes to "family" farmers) could be considered the "fourth" or "fifth" rail in American politics--right after you die for suggesting Social Security reform, your corpse will be dismembered for suggesting that American agriculture is strong enough to compete in a truly free market.

(It also explains the huge importance of those Iowa caucuses. You can't be a serious presidential contender without Iowa; you can't do Iowa without promising to continue the subsidies. And people think the NRA has a strong lobby.)

A Libertarian solution: let's end welfare for agribusiness.

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