In the last year, the price of wheat has tripled, corn doubled, and rice almost doubled. As prices soared, food riots have broken out in about 20 poor countries including Yemen, Haiti, Egypt, Pakistan, Indonesia, Ivory Coast, and Mexico. In response some countries, such as India, Pakistan Egypt and Vietnam, are banning the export of grains and imposing food price controls.
Are rising food prices the result of the economic dynamism of China and India, in which newly prosperous consumers are demanding more food—especially more meat? Perennial doomsters such as the Earth Policy Institute's Lester Brown predicted more than a decade ago that China's growing food demand would destabilize global markets and signal a permanent increase in grain prices. But that thesis has so far not been borne out by the facts. China is a net grain exporter. India is also largely self-sufficient in grains. At some time in the future, these countries may become net grain importers, but they are not now and so cannot be blamed to for today's higher food prices.
If surging demand is not the problem, what is? In three words: stupid energy policies. Although they are not perfect substitutes, oil and natural gas prices tend to move in tandem. So as oil prices rose above $100 per barrel, the price of gas also went up. Natural gas is the main feedstock for nitrogen fertilizer. As gas prices soared, so did fertilizer prices which rose by 200 percent.
As a report from the International Center for Soil Fertility and Agricultural Development (ICSFAD) notes, applying the fertilizer derived from 1000 cubic feet of natural gas yields around 480 pounds of grain. That amount of grain would supply enough calories to feed a person for one year. Rising oil prices also contribute to higher food prices because farmers need transport fuel to run their tractors and to get food to urban markets.
Even worse is the bioethanol craze. Politicians in both the United States and the European Union are mandating that vast quantities of food be turned into fuel as they chase the chimera of "energy independence." For example, Congress passed and President George W. Bush signed misbegotten legislation requiring fuel producers to use at least 36 billion gallons of biofuels by 2022-which equals about 27 percent of the gasoline Americans currently use each year and is about five times the amount being produced now. And the European Union set a goal that 10 percent of transport fuels come from biofuels by 2020.
The result of these mandates is that about 100 million tons of grain will be transformed this year into fuel, drawing down global grain stocks to their lowest levels in decades. Keep in mind that 100 million tons of grain is enough to feed nearly 450 million people for a year.
As Dennis Avery from the Hudson Institute's Center for Global Food Issues points out, the higher corn prices that result from biofuels mandates mean that farmers are shifting from producing wheat and soybeans to producing corn. Less wheat and soybeans means higher prices for those grains. In the face of higher prices for wheat, corn and soybeans consumers try to shift to rice which in turns raises that grain's price. In addition, higher grain prices encourage farmers in developing countries to chop down and plow up forests. It also hasn't helped that some traditionally strong grain exporters such as Australia have experienced extreme weather.
So what to do? In the short run, there is some good news. High prices are encouraging farmers to shift back toward wheat and soybeans which should relieve some of the pressure on grain prices. Second, the biofuels mandates must go. If biofuels are such a good idea, entrepreneurs, inventors and investors will make them into a viable energy source without any government subsidies. Thirdly, both high and low technologies are addressing high fertilizer prices. On the high tech front, Arcadia Biosciences has created biotech rice and corn varieties that need much less nitrogen fertilizer that conventional varieties require. In Bangladesh and other poor countries, farmers are embedding low tech fertilizer-infused briquettes in the soil to deliver nitrogen to rice. This boosts crop production 25 percent while cutting fertilizer use by 50 percent.
Expanding acreage to grow biofuels is bad for biodiversity and may even boost the carbon dioxide emissions that contribute to man-made global warming. Avery notes that food production needs to double because there will be more people who will want to eat better by 2050, at which point world population begins to slide back downwards. Turning food into fuel makes that goal much harder to achieve. Avery is right when he argues, "Biofuels are purely and simply the biggest Green mistake we've ever made and we're still making it."
Ronald Bailey is Reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.
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