Record drought in the US farm belt this summer withered corn fields and parched hopes for a record US corn harvest, but US farmers may not be the ones most severely affected by the disaster. Most have insurance against crop failure. Not so the world's import-dependent developing countries, nor their poorest consumers. They are hurting.
This is the third food price spike in the last five years, and this time the finger is being pointed squarely at biofuels. More specifically, the loss of a quarter or more of the projected US corn harvest has prompted urgent calls for reform in that country's corn ethanol programme.
Domestically, livestock producers dependent on corn for feed have led demands for change in the US Renewable Fuel Standard (RFS), which mandates that a rising volume of fuel come from renewable sources. Up to now that has been overwhelmingly corn-based ethanol. In November, the US Environmental Protection Agency (EPA) will rule on a request for a waiver of the RFS mandate to reduce pressures on US corn supplies.
But US livestock producers aren't the only ones affected by shortages and high prices. The most devastating impact is on the poor in developing countries, who often use more than half their incomes to buy food. It also hurts low-income developing countries dependent on corn imports.
As I showed in my recent study, "The Costs to Developing Countries of US Ethanol Expansion", the US ethanol programme pushed up corn prices by up to 21 per cent as it expanded to consume 40 per cent of the US harvest. This price premium was passed on to corn importers, adding an estimated $11.6bn to the import bills of the world's corn-importing countries since 2005. More than half of that - $6.6bn - was paid by developing countries between 2005 and 2010. The highest cost was borne by the biggest corn importers. Mexico paid $1.1bnmore for its corn, Egypt $727m.
Besides Egypt, North African countries saw particularly high ethanol-related losses: Algeria ($329m), Morocco ($236m), Tunisia ($99m) and Libya ($68m). Impacts were also high in other strife-torn countries in the region - Syria ($242m), Iran ($492m) and Yemen ($58m). North Africa impacts totalled $1.4bn. Scaled to population size, these economic losses were at least as severe as those seen in Mexico. The link between high food prices and unrest in the region is by now well documented, and US ethanol is contributing to that instability.
Biofuel impacts on food prices
The debate over biofuels has grown urgent since food prices first spiked in 2007-2008, ushering in a food crisis characterised by repeated jumps in global food prices. Prices for most staple foods doubled, fell when the bubble burst in 2009, then jumped again to their previous high levels in 2010-2011.
After a brief respite in the first half of this year, the US drought triggered a new wave of price spikes, the third in just five years. Corn prices were particularly hard-hit, reaching record levels of more than $8.00/bushel, and more than $300 per metric tonne. Before the first spikes, prices had languished around $100/metric tonne. More
