Thursday, April 24, 2008

Gov't Tampering Hurts the Poor

Here is a devastating story by Deroy Murdock in today's National Review Online about how U.S. ethanol subsidies are causing shortages and increasing prices on staples such as wheat, corn, rice, and soybeans. Here's a bit:

Climbing corn prices have ignited Mexican tortilla riots. Enraged citizens in Egypt and Pakistan — potential Muslim powder kegs — have also violently protested premium prices for basic staples. Similar instability has erupted from the Ivory Coast to Indonesia. Resurrecting the defeated “import substitution” model of yore, India and Vietnam are among the nations that lately have prohibited grain exports and imposed government price controls. Kazakhstan, Earth’s No. 5 wheat source, just halted wheat exports, hoping to hoard local supplies. One third of the global wheat market is now closed.

High oil prices and growing global food demand fan these flames, but government lit the match. Atop the European Union’s biofuels mandate (5.75 percent of gasoline and diesel by 2010; 10 percent expected in 2020), America’s 51-cent-per-gallon ethanol tax subsidy (2007 cost: $8 billion) and Congress’ 7.5-billion-gallon annual production quota (rising to 36 billion in 2022, including 15 billion from corn) have turned corn farms into cash cows. Diverting one quarter of U.S. corn to motors rather than to mouths has boosted prices 74 percent in a year.

Eager to ride the ethanol gravy train, wheat and soybean farmers increasingly switch to corn. Thus, hard wheat is up 86 percent, while soybeans cost 93 percent more. Since April 15, 2007, pricier, grain-based animal feed (which consumed 40 percent of 2007’s 13 billion bushel U.S. corn crop) has helped hike eggs 46 percent. Got milk? You paid 26 percent more. Conversely, meat prices have dropped, as farmers slaughter animals rather than pay so much to feed them. (For details, click here.)

All this has triggered a race to the top of the grain silo. On April 9, “the World Bank estimated global food prices have risen 83 percent over the past three years, threatening recent strides in poverty reduction,” the Wall Street Journal noted the next day. “As crops are sold for alternative-energy production, food prices have soared: The price of rice, the staple for billions of Asians, is up 147 percent over the past year.”

Government intervention causes this. Free market capitalism has its downside of course. Government meddling always causes problems. Thousands -- probably millions -- of already hungry people are hungrier tonight because of wrong-headed U.S. Government intervention in food markets and to combat "climate change" through ethanol subsidies. It borders on the criminal.

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