Last week, the U.S. Department of Agriculture lowered its estimate on yields from 2010 corn crops to 12.7 billion bushels for 2010 from the previous September estimate of 13.2 billion bushels. In 2009, 13.1 billion bushels were produced. The lowered estimate led to the largest daily corn spike since 1973 (Financial Times, free registration required). A rise in corn prices raises the price of food products that use corn, most red meats, and ethanol.
Reuters, Salon, and the Financial Times covered the price spike, explaining that estimated supply reductions can have severe consequences due to increasing global demand for corn. Adbolreza Abbassian, a grain economist with the UN, noted, “We need a record crop every year. If not, we are in trouble.” The U.S. produces 40 percent of the world’s corn supply, while 30 percent of that goes towards ethanol — meaning that over 10 percent of global corn production is being used for fuel. The Financial Times also secured an interview with Tom Vilsack, U.S. Agriculture Secretary, who does not believe we will see a repeat of the 2007-2008 food crisis.
The ethanol industry, hoping to contain the damage, immediately blogged about these reports: “As Before, ‘Food vs. Fuels’ Arguments Strike Out.”
Geoff Cooper, of the Renewable Fuels Association, writes:
Last Friday’s USDA Crop Production and WASDE reports, which slashed estimates for the 2010 corn crop and average yield, sent the anti-biofuels crowd scurrying to find their trusty “Food vs. Fuel” playbooks. The alarmist rhetoric over the past several days seems virtually cut and pasted from the raft of doomsday press releases and manufactured “studies” that cluttered the media channels in 2008 when record oil prices and rampant speculation pushed grain prices to unprecedented levels and food prices to the highest levels in recent memory. For opponents of ethanol and beneficiaries of cheap corn, pointing the finger at biofuels has become the reflexive knee-jerk response any time grain prices start to rise.
But this time, the Malthusians are failing to gain any traction.
What a bombshell! This post is an excellent example of Propaganda 101. Notice the language Cooper employs, referring to “alarmist rhetoric,” “doomsday press releases,” “manufactured studies,” “rampant speculation,” and the worst: “Malthusians.” He frames the debate as a bunch of wackos making false claims, attacks Wall Street, and implies that the opponents of ethanol paid for misleading studies to be created. That’s a pretty damning accusation. Unfortunately for Mr. Cooper, the wide consensus among academics at the time was that the increase in biofuel usage did play a significant role in the 2007-2008 food crisis.
Indeed, as Cooper acknowledges:
The World Bank, which in 2008 hastily suggested biofuels was playing a large role in higher food prices, released an mia culpa analysis just a few months ago that found …the effect of biofuels on food prices has not been as large as originally thought…
Apparently, when you don’t agree with the corn ethanol industry your academic work is sloppy and was completed hastily, even when you’re the World Bank. It’s also appropriate to call into question their academic integrity by suggesting that groups with a financial interest in the outcome of the study paid for the results. On the other hand, when the World Bank reverses course and completes a study vindicating the ethanol industry, it is seen as a mea culpa (I’m not confident the World Bank cares much about offending a relatively small U.S. industry) and should be taken as gospel.
It is important to note that the World Bank did mostly vindicate the diversion of corn towards ethanol from playing a large role in the food crisis, as they had previously thought. However, they didn’t completely vindicate the industry, and the price of corn has doubled in the last ten years. Furthermore, it is worth pointing out that even a small jump in the price of corn can have a devastating effect on people living in poverty. The increased demand for corn to be converted to fuel will raise the price of corn in the short term, as long run adjustments are made to plant more (at the expense of other crops or previously unused farmland).