First, government subsidies for the production of biofuels remains a hot topic. Some blame diversion of food crops to biofuels as one reason for soaring food prices. Certainly, I would distinguish among the cost-effectiveness of such solutions. The US programme is a massive financial boondoggle, whereas that of Brazil has established its economic rationale for quite some time. At any rate, the UN Food and Agricultural Organization (FAO) believes that curtailing such subsidies should alleviate price rises hurting some of the countries hardest hit by rising food prices. A recent NY Times op-ed has this to say on the matter:
The price of agricultural commodities has surged by more than a third over the past year — cereal prices by 70 percent — surpassing even the levels that sparked widespread food riots in 2008. According to the World Bank, the rise in prices pushed 44 million more people into hunger in the second half of 2010.There's also the matter of major agricultural producers refusing to export their products, also exacerbating high prices worldwide:
It is disappointing that the agriculture ministers from the 20 large industrial economies who gathered last week in Paris failed to end two policies that are a big part of the problem: bans on agricultural exports by certain producers and government supports for food-based biofuel production.
A report for the Group of 20 meeting by the United Nations’ Food and Agriculture Organization, the World Bank and others noted that eliminating or curtailing these policies would help mitigate the spikes in prices that have deepened hunger in the poorest countries in the world.
The United States, Brazil and several other biofuel makers opposed an agreement to cut support for biofuels. This country is the world’s biggest ethanol producer. The 13.5 billion gallons made here last year used about 40 percent of the nation’s corn crop. Government supports include a nearly $6 billion annual subsidy for ethanol makers.
The ministers agreed only to further study the relation between biofuel production and food prices. That is just an excuse for continuing to protect these industries. The cost should be clear to all by this point. The report to the Group of 20 noted that biofuels consumed 20 percent of the global sugar cane crop between 2007 and 2009, when food prices soared, as well as 4 percent of the beet crop and 9 percent of the world’s production of coarse grains like corn.
The ministers also failed to forbid the use of export barriers to hold down food prices at home. Argentina [see my earlier post on its soy export limits], Russia and more than two dozen others have adopted bans since prices began to surge, sending global prices even higher and discouraging investment in food producing regions. The ministers did agree that countries could not restrict sales to the World Food Program so it can continue to address crises. It is not enough.That said, the speculation-wary Sarkozy has shown his influence in putting in place mechanisms for determining if rising prices are due less to supply and demand dynamics but trader profiteering, howsoever defined:
The agricultural summit meeting, the first of its kind, did make some progress. The participants agreed to set up a system to monitor world food stocks and production to prevent misinformation that can contribute to price fluctuations. They also agreed on a pilot program for an emergency food reserve system to respond to shortages in vulnerable countries.The Guardian also has a summary of other areas discussed if you are further interested in this important topic.