Drought, Climate Change, Corn Prices, Ethanol and Biofuels
As we’ve all noticed there’s a drought going on in the American heartland. As many have noted this is leading to soaring prices of three main crops, corn wheat and soya. For that American heartland is the major source of export crops for all three (less so for soya than the other two to be sure).
We know that high food prices can kill poor people: this is not generally regarded as a good thing even though there are far too many small population fanatics around. Even they tend not to advocate starvation as a solution. We also know that both the US and the EU have mandates that insist that certain portions of transportation fuels must be provided by biofuels. That is, putting corn into cars rather than into starving people.
As a friend of mine in the UK, Andrew Montford, points out, this might not be the most humanitarian or logical method of dealing with the matter.
In fact, in normal times, it’s said that up to 40% of the US corn crop is converted into ethanol which is then fed into cars. When the crop slumps this proportion is likely to rise. For a drought and a shortage of corn is not going to do much to change driving habits. But still, despite that shortage of corn the gasoline allowable for sale has to be blended with ethanol.
What this means is that the swing consumer of this corn in newly short supply is going to be the poor consumer: the one who actually wants to eat the stuff rather than drive with it. Which just doesn’t sound like a very sensible idea really.