How Ethanol Fuels the Food Crisis
How Biofuels Could Starve the Poor By C. Ford Runge and Benjamin Senauer From Foreign Affairs , May/June 2007 Summary: Thanks to high oil prices and hefty subsidies, corn-based ethanol is now all the rage in the United States. But it takes so much supply to keep ethanol production going that the price of corn -- and those of other food staples -- is shooting up around the world. To stop this trend, and prevent even more people from going hungry, Washington must conserve more and diversify ethanol's production inputs. C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law and Director of the Center for International Food and Agricultural Policy at the University of Minnesota. Benjamin Senauer is Professor of Applied Economics and Co-director of the Food Industry Center at the University of Minnesota. THE ETHANOL BUBBLE In 1974, as the United States was reeling from the oil embargo imposed by the Organization of Petroleum Exporting Countries, Congress took the first of many legislative steps to promote ethanol made from corn as an alternative fuel. On April 18, 1977, amid mounting calls for energy independence, President Jimmy Carter donned his cardigan sweater and appeared on television to tell Americans that balancing energy demands with available domestic resources would be an effort the "moral equivalent of war." The gradual phaseout of lead in the 1970s and 1980s provided an additional boost to the fledgling ethanol industry. (Lead, a toxic substance, is a performance enhancer when added to gasoline, and it was partly replaced by ethanol.) A series of tax breaks and subsidies also helped. In spite of these measures, with each passing year the United States became more dependent on imported petroleum, and ethanol remained marginal at best. Now, thanks to a combination of high oil prices and even more generous government subsidies, corn-based ethanol has become the rage. There were 110 ethanol refineries in operation in the United States at the end of 2006, according to the Renewable Fuels Association. Many were being expanded, and another 73 were under construction. When these projects are completed, by the end of 2008, the United States' ethanol production capacity will reach an estimated 11.4 billion gallons per year. In his latest State of the Union address, President George W. Bush called on the country to produce 35 billion gallons of renewable fuel a year by 2017, nearly five times the level currently mandated. The push for ethanol and other biofuels has spawned an industry that depends on billions of dollars of taxpayer subsidies, and not only in the United States. In 2005, global ethanol production was 9.66 billion gallons, of which Brazil produced 45.2 percent (from sugar cane) and the United States 44.5 percent (from corn). Global production of biodiesel (most of it in Europe), made from oilseeds, was almost one billion gallons. The industry's growth has meant that a larger and larger share of corn production is being used to feed the huge mills that produce ethanol. According to some estimates, ethanol plants will burn up to half of U.S. domestic corn supplies within a few years. Ethanol demand will bring 2007 inventories of corn to their lowest levels since 1995 (a drought year), even though 2006 yielded the third-largest corn crop on record. Iowa may soon become a net corn importer. The enormous volume of corn required by the ethanol industry is sending shock waves through the food system. (The United States accounts for some 40 percent of the world's total corn production and over half of all corn exports.) In March 2007, corn futures rose to over $4.38 a bushel, the highest level in ten years. Wheat and rice prices have also surged to decade highs, because even as those grains are increasingly being used as substitutes for corn, farmers are planting more acres with corn and fewer acres with other crops. This might sound like nirvana to corn producers, but it is hardly that for consumers, especially in poor developing countries, who will be hit with a double shock if both food prices and oil prices stay high. The World Bank has estimated that in 2001, 2.7 billion people in the world were living on the equivalent of less than $2 a day; to them, even marginal increases in the cost of staple grains could be devastating. Filling the 25-gallon tank of an SUV with pure ethanol requires over 450 pounds of corn -- which contains enough calories to feed one person for a year. By putting pressure on global supplies of edible crops, the surge in ethanol production will translate into higher prices for both processed and staple foods around the world. Biofuels have tied oil and food prices together in ways that could profoundly upset the relationships between food producers, consumers, and nations in the years ahead, with potentially devastating implications for both global poverty and food security. THE OIL AND BIOFUEL ECONOMY In the United States and other large economies, the ethanol industry is artificially buoyed by government subsidies, minimum production levels, and tax credits. High oil prices over the past few years have made ethanol naturally competitive, but the U.S. government continues to heavily subsidize corn farmers and ethanol producers. Direct corn subsidies equaled $8.9 billion in 2005. Although these payments will fall in 2006 and 2007 because of high corn prices, they may soon be dwarfed by the panoply of tax credits, grants, and government loans included in energy legislation passed in 2005 and in a pending farm bill designed to support ethanol producers. The federal government already grants ethanol blenders a tax allowance of 51 cents per gallon of ethanol they make, and many states pay out additional subsidies. Consumption of ethanol in the United States was expected to reach over 6 billion gallons in 2006. (Consumption of biodiesel was expected to be about 250 million gallons.) In 2005, the U.S. government mandated the use of 7.5 billion gallons of biofuels per year by 2012; in early 2007, 37 governors proposed raising that figure to 12 billion gallons by 2010; and last January, President Bush raised it further, to 35 billion gallons by 2017. Six billion gallons of ethanol are needed every year to replace the fuel additive known as MTBE, which is being phased out due to its polluting effects on ground water. The European Commission is using legislative measures and directives to promote biodiesel, produced mainly in Europe, made from rapeseeds and sunflower seeds. In 2005, the European Union produced 890 million gallons of biodiesel, over 80 percent of the world's total. The EU's Common Agricultural Policy also promotes the production of ethanol from a combination of sugar beets and wheat with direct and indirect subsidies. Brussels aims to have 5.75 percent of motor fuel consumed in the European Union come from biofuels by 2010 and 10 percent by 2020. Brazil, which currently produces approximately the same amount of ethanol as the United States, derives almost all of it from sugar cane. Like the United States, Brazil began its quest for alternative energy in the mid-1970s. The government has offered incentives, set technical standards, and invested in supporting technologies and market promotion. It has mandated that all diesel contain two percent biodiesel by 2008 and five percent biodiesel by 2013. It has also required that the auto industry produce engines that can use biofuels and has developed wide-ranging industrial and land-use strategies to promote them. Other countries are also jumping on the biofuel bandwagon. In Southeast Asia, vast areas of tropical forest are being cleared and burned to plant oil palms destined for conversion to biodiesel. This trend has strong momentum. Despite a recent decline, many experts expect the price of crude oil to remain high in the long term. Demand for petroleum continues to increase faster than supplies, and new sources of oil are often expensive to exploit or located in politically risky areas. According to the U.S. Energy Information Administration's latest projections, global energy consumption will rise by 71 percent between 2003 and 2030, with demand from developing countries, notably China and India, surpassing that from members of the Organization for Economic Cooperation and Development by 2015. The result will be sustained upward pressure on oil prices, which will allow ethanol and biodiesel producers to pay much higher premiums for corn and oilseeds than was conceivable just a few years ago. The higher oil prices go, the higher ethanol prices can go while remaining competitive -- and the more ethanol producers can pay for corn. If oil reaches $80 per barrel, ethanol producers could afford to pay well over $5 per bushel for corn. With the price of raw materials at such highs, the biofuel craze would place significant stress on other parts of the agricultural sector. In fact, it already does. In the United States, the growth of the biofuel industry has triggered increases not only in the prices of corn, oilseeds, and other grains but also in the prices of seemingly unrelated crops and products. The use of land to grow corn to feed the ethanol maw is reducing the acreage devoted to other crops. Food processors who use crops such as peas and sweet corn have been forced to pay higher prices to keep their supplies secure -- costs that will eventually be passed on to consumers. Rising feed prices are also hitting the livestock and poultry industries. According to Vernon Eidman, a professor emeritus of agribusiness management at the University of Minnesota, higher feed costs have caused returns to fall sharply, especially in the poultry and swine sectors. If returns continue to drop, production will decline, and the prices for chicken, turkey, pork, milk, and eggs will rise. A number of Iowa's pork producers could go out of business in the next few years as they are forced to compete with ethanol plants for corn supplies. Proponents of corn-based ethanol argue that acreage and yields can be increased to satisfy the rising demand for ethanol. But U.S. corn yields have been rising by a little less than two percent annually over the last ten years, and even a doubling of those gains could not meet current demand. As more acres are planted with corn, land will have to be pulled from other crops or environmentally fragile areas, such as those protected by the Department of Agriculture's Conservation Reserve Program. In addition to these fundamental forces, speculative pressures have created what might be called a "biofuel mania": prices are rising because many buyers think they will. Hedge funds are making huge bets on corn and the bull market unleashed by ethanol. The biofuel mania is commandeering grain stocks with a disregard for the obvious consequences. It seems to unite powerful forces, including motorists' enthusiasm for large, fuel-inefficient vehicles and guilt over the ecological consequences of petroleum-based fuels. But even as ethanol has created opportunities for huge profits for agribusiness, speculators, and some farmers, it has upset the traditional flows of commodities and the patterns of trade and consumption both inside and outside of the agricultural sector. This craze will create a different problem if oil prices decline because of, say, a slowdown in the global economy. With oil at $30 a barrel, producing ethanol would no longer be profitable unless corn sold for less than $2 a bushel, and that would spell a return to the bad old days of low prices for U.S. farmers. Undercapitalized ethanol plants would be at risk, and farmer-owned cooperatives would be especially vulnerable. Calls for subsidies, mandates, and tax breaks would become even more shrill than they are now: there would be clamoring for a massive bailout of an overinvested industry. At that point, the major investments that have been made in biofuels would start to look like a failed gamble. On the other hand, if oil prices hover around $55-$60, ethanol producers could pay from $3.65 to $4.54 for a bushel of corn and manage to make a normal 12 percent profit. Whatever happens in the oil market, the drive for energy independence, which has been the basic justification for huge investments in and subsidies for ethanol production, has already made the industry dependent on high oil prices. CORNUCOPIA One root of the problem is that the biofuel industry has long been dominated not by market forces but by politics and the interests of a few large companies. Corn has become the prime raw material even though biofuels could be made efficiently from a variety of other sources, such as grasses and wood chips, if the government funded the necessary research and development. But in the United States, at least, corn and soybeans have been used as primary inputs for many years thanks in large part to the lobbying efforts of corn and soybean growers and Archer Daniels Midland Company (ADM), the biggest ethanol producer in the U.S. market. Since the late 1960s, ADM positioned itself as the "supermarket to the world" and aimed to create value from bulk commodities by transforming them into processed products that command heftier prices. In the 1970s, ADM started making ethanol and other products resulting from the wet-milling of corn, such as high fructose corn syrup. It quickly grew from a minor player in the feed market to a global powerhouse. By 1980, ADM's ethanol production had reached 175 million gallons per year, and high fructose corn syrup had become a ubiquitous sweetening agent in processed foods. In 2006, ADM was the largest producer of ethanol in the United States: it made more than 1.07 billion gallons, over four times more than its nearest rival, VeraSun Energy. In early 2006, it announced plans to increase its capital investment in ethanol from $700 million to $1.2 billion in 2008 and increase production by 47 percent, or close to 500 million gallons, by 2009. ADM owes much of its growth to political connections, especially to key legislators who can earmark special subsidies for its products. Vice President Hubert Humphrey advanced many such measures when he served as a senator from Minnesota. Senator Bob Dole (R-Kans.) advocated tirelessly for the company during his long career. As the conservative critic James Bovard noted over a decade ago, nearly half of ADM's profits have come from products that the U.S. government has either subsidized or protected. Partly as a result of such government support, ethanol (and to a lesser extent biodiesel) is now a major fixture of the United States' agricultural and energy sectors. In addition to the federal government's 51-cents-per-gallon tax credit for ethanol, smaller producers get a 10-cents-per-gallon tax reduction on the first 15 million gallons they produce. There is also the "renewable fuel standard," a mandatory level of nonfossil fuel to be used in motor vehicles, which has set off a political bidding war. Despite already high government subsidies, Congress is considering lavishing more money on biofuels. Legislation related to the 2007 farm bill introduced by Representative Ron Kind (D-Wis.) calls for raising loan guarantees for ethanol producers from $200 million to $2 billion. Advocates of corn-based ethanol have rationalized subsidies by pointing out that greater ethanol demand pushes up corn prices and brings down subsidies to corn growers. The ethanol industry has also become a theater of protectionism in U.S. trade policy. Unlike oil imports, which come into the country duty-free, most ethanol currently imported into the United States carries a 54-cents-per-gallon tariff, partly because cheaper ethanol from countries such as Brazil threatens U.S. producers. (Brazilian sugar cane can be converted to ethanol more efficiently than can U.S. corn.) The Caribbean Basin Initiative could undermine this protection: Brazilian ethanol can already be shipped duty-free to CBI countries, such as Costa Rica, El Salvador, or Jamaica, and the agreement allows it to go duty-free from there to the United States. But ethanol supporters in Congress are pushing for additional legislation to limit those imports. Such government measures shield the industry from competition despite the damaging repercussions for consumers. STARVING THE HUNGRY Biofuels may have even more devastating effects in the rest of the world, especially on the prices of basic foods. If oil prices remain high -- which is likely -- the people most vulnerable to the price hikes brought on by the biofuel boom will be those in countries that both suffer food deficits and import petroleum. The risk extends to a large part of the developing world: in 2005, according to the UN Food and Agriculture Organization, most of the 82 low-income countries with food deficits were also net oil importers. Even major oil exporters that use their petrodollars to purchase food imports, such as Mexico, cannot escape the consequences of the hikes in food prices. In late 2006, the price of tortilla flour in Mexico, which gets 80 percent of its corn imports from the United States, doubled thanks partly to a rise in U.S. corn prices from $2.80 to $4.20 a bushel over the previous several months. (Prices rose even though tortillas are made mainly from Mexican-grown white corn because industrial users of the imported yellow corn, which is used for animal feed and processed foods, started buying the cheaper white variety.) The price surge was exacerbated by speculation and hoarding. With about half of Mexico's 107 million people living in poverty and relying on tortillas as a main source of calories, the public outcry was fierce. In January 2007, Mexico's new president, Felipe Calderón, was forced to cap the prices of corn products. The International Food Policy Research Institute, in Washington, D.C., has produced sobering estimates of the potential global impact of the rising demand for biofuels. Mark Rosegrant, an IFPRI division director, and his colleagues project that given continued high oil prices, the rapid increase in global biofuel production will push global corn prices up by 20 percent by 2010 and 41 percent by 2020. The prices of oilseeds, including soybeans, rapeseeds, and sunflower seeds, are projected to rise by 26 percent by 2010 and 76 percent by 2020, and wheat prices by 11 percent by 2010 and 30 percent by 2020. In the poorest parts of sub-Saharan Africa, Asia, and Latin America, where cassava is a staple, its price is expected to increase by 33 percent by 2010 and 135 percent by 2020. The projected price increases may be mitigated if crop yields increase substantially or ethanol production based on other raw materials (such as trees and grasses) becomes commercially viable. But unless biofuel policies change significantly, neither development is likely. The production of cassava-based ethanol may pose an especially grave threat to the food security of the world's poor. Cassava, a tropical potato-like tuber also known as manioc, provides one-third of the caloric needs of the population in sub-Saharan Africa and is the primary staple for over 200 million of Africa's poorest people. In many tropical countries, it is the food people turn to when they cannot afford anything else. It also serves as an important reserve when other crops fail because it can grow in poor soils and dry conditions and can be left in the ground to be harvested as needed. Thanks to its high-starch content, cassava is also an excellent source of ethanol. As the technology for converting it to fuel improves, many countries -- including China, Nigeria, and Thailand -- are considering using more of the crop to that end. If peasant farmers in developing countries could become suppliers for the emerging industry, they would benefit from the increased income. But the history of industrial demand for agricultural crops in these countries suggests that large producers will be the main beneficiaries. The likely result of a boom in cassava-based ethanol production is that an increasing number of poor people will struggle even more to feed themselves. Participants in the 1996 World Food Summit set out to cut the number of chronically hungry people in the world -- people who do not eat enough calories regularly to be healthy and active -- from 823 million in 1990 to about 400 million by 2015. The Millennium Development Goals established by the United Nations in 2000 vowed to halve the proportion of the world's chronically underfed population from 16 percent in 1990 to eight percent in 2015. Realistically, however, resorting to biofuels is likely to exacerbate world hunger. Several studies by economists at the World Bank and elsewhere suggest that caloric consumption among the world's poor declines by about half of one percent whenever the average prices of all major food staples increase by one percent. When one staple becomes more expensive, people try to replace it with a cheaper one, but if the prices of nearly all staples go up, they are left with no alternative. In a study of global food security we conducted in 2003, we projected that given the rates of economic and population growth, the number of hungry people throughout the world would decline by 23 percent, to about 625 million, by 2025, so long as agricultural productivity improved enough to keep the relative price of food constant. But if, all other things being equal, the prices of staple foods increased because of demand for biofuels, as the IFPRI projections suggest they will, the number of food-insecure people in the world would rise by over 16 million for every percentage increase in the real prices of staple foods. That means that 1.2 billion people could be chronically hungry by 2025 -- 600 million more than previously predicted. The world's poorest people already spend 50 to 80 percent of their total household income on food. For the many among them who are landless laborers or rural subsistence farmers, large increases in the prices of staple foods will mean malnutrition and hunger. Some of them will tumble over the edge of subsistence into outright starvation, and many more will die from a multitude of hunger-related diseases. THE GRASS IS GREENER And for what? Limited environmental benefits at best. Although it is important to think of ways to develop renewable energy, one should also carefully examine the eager claims that biofuels are "green." Ethanol and biodiesel are often viewed as environmentally friendly because they are plant-based rather than petroleum-based. In fact, even if the entire corn crop in the United States were used to make ethanol, that fuel would replace only 12 percent of current U.S. gasoline use. Thinking of ethanol as a green alternative to fossil fuels reinforces the chimera of energy independence and of decoupling the interests of the United States from an increasingly troubled Middle East. Should corn and soybeans be used as fuel crops at all? Soybeans and especially corn are row crops that contribute to soil erosion and water pollution and require large amounts of fertilizer, pesticides, and fuel to grow, harvest, and dry. They are the major cause of nitrogen runoff -- the harmful leakage of nitrogen from fields when it rains -- of the type that has created the so-called dead zone in the Gulf of Mexico, an ocean area the size of New Jersey that has so little oxygen it can barely support life. In the United States, corn and soybeans are typically planted in rotation, because soybeans add nitrogen to the soil, which corn needs to grow. But as corn increasingly displaces soybeans as a main source of ethanol, it will be cropped continuously, which will require major increases in nitrogen fertilizer and aggravate the nitrogen runoff problem. Nor is corn-based ethanol very fuel efficient. Debates over the "net energy balance" of biofuels and gasoline -- the ratio between the energy they produce and the energy needed to produce them -- have raged for decades. For now, corn-based ethanol appears to be favored over gasoline, and biodiesel over petroleum diesel -- but not by much. Scientists at the Argonne National Laboratory and the National Renewable Energy Laboratory have calculated that the net energy ratio of gasoline is 0.81, a result that implies an input larger than the output. Corn-based ethanol has a ratio that ranges between 1.25 and 1.35, which is better than breaking even. Petroleum diesel has an energy ratio of 0.83, compared with that of biodiesel made from soybean oil, which ranges from 1.93 to 3.21. (Biodiesel produced from other fats and oils, such as restaurant grease, may be more energy efficient.) Similar results emerge when biofuels are compared with gasoline using other indices of environmental impact, such as greenhouse gas emissions. The full cycle of the production and use of corn-based ethanol releases less greenhouse gases than does that of gasoline, but only by 12 to 26 percent. The production and use of biodiesel emits 41 to 78 percent less such gases than do the production and use of petroleum-based diesel fuels. Another point of comparison is greenhouse gas emissions per mile driven, which takes account of relative fuel efficiency. Using gasoline blends with 10 percent corn-based ethanol instead of pure gasoline lowers emissions by 2 percent. If the blend is 85 percent ethanol (which only flexible-fuel vehicles can run on), greenhouse gas emissions fall further: by 23 percent if the ethanol is corn-based and by 64 percent if it is cellulose-based. Likewise, diesel containing 2 percent biodiesel emits 1.6 percent less greenhouse gases than does petroleum diesel, whereas blends with 20 percent biodiesel emit 16 percent less, and pure biodiesel (also for use only in special vehicles) emits 78 percent less. On the other hand, biodiesel can increase emissions of nitrogen oxide, which contributes to air pollution. In short, the "green" virtues of ethanol and biodiesel are modest when these fuels are made from corn and soybeans, which are energy-intensive, highly polluting row crops. The benefits of biofuels are greater when plants other than corn or oils from sources other than soybeans are used. Ethanol made entirely from cellulose (which is found in trees, grasses, and other plants) has an energy ratio between 5 and 6 and emits 82 to 85 percent less greenhouse gases than does gasoline. As corn grows scarcer and more expensive, many are betting that the ethanol industry will increasingly turn to grasses, trees, and residues from field crops, such as wheat and rice straw and cornstalks. Grasses and trees can be grown on land poorly suited to food crops or in climates hostile to corn and soybeans. Recent breakthroughs in enzyme and gasification technologies have made it easier to break down cellulose in woody plants and straw. Field experiments suggest that grassland perennials could become a promising source of biofuel in the future. For now, however, the costs of harvesting, transporting, and converting such plant matters are high, which means that cellulose-based ethanol is not yet commercially viable when compared with the economies of scale of current corn-based production. One ethanol-plant manager in the Midwest has calculated that fueling an ethanol plant with switchgrass, a much-discussed alternative, would require delivering a semitrailer truckload of the grass every six minutes, 24 hours a day. The logistical difficulties and the costs of converting cellulose into fuel, combined with the subsidies and politics currently favoring the use of corn and soybeans, make it unrealistic to expect cellulose-based ethanol to become a solution within the next decade. Until it is, relying more on sugar cane to produce ethanol in tropical countries would be more efficient than using corn and would not involve using a staple food. The future can be brighter if the right steps are taken now. Limiting U.S. dependence on fossil fuels requires a comprehensive energy-conservation program. Rather than promoting more mandates, tax breaks, and subsidies for biofuels, the U.S. government should make a major commitment to substantially increasing energy efficiency in vehicles, homes, and factories; promoting alternative sources of energy, such as solar and wind power; and investing in research to improve agricultural productivity and raise the efficiency of fuels derived from cellulose. Washington's fixation on corn-based ethanol has distorted the national agenda and diverted its attention from developing a broad and balanced strategy. In March, the U.S. Energy Department announced that it would invest up to $385 million in six biorefineries designed to convert cellulose into ethanol. That is a promising step in the right direction.

A Removable Feast By C. Ford Runge and Benjamin Senauer From Foreign Affairs , May/June 2000 Summary: Amid all the fuss over genetically modified food, environmentalists and consumer activists have overlooked a vital challenge for the developing world: food security. As the South's population grows, it will need more food, a more varied and nutritious diet, and better access to the North's markets. Rich countries must do their part by slashing trade barriers to developing countries' goods -- especially in agriculture -- and spreading the biotechnology revolution to the poorest farmers who need it most. But the debacle in Seattle showed how difficult this quest will be. C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law at the University of Minnesota. Benjamin Senauer, Professor of Applied Economics at the University of Minnesota, is currently on leave at the International Food Policy Research Institute (IFPRI). This article was supported by a Ford Foundation grant to IFPRI. FOOD SECURITY AND TRADE The debacle of the World Trade Organization's meeting in Seattle last year underscored how much can go wrong with world trade -- and how insecure the future of trade liberalization has become. America's overreaching unilateralism offended delegations from around the world and undercut the multilateral premise of the gathering. Seattle's timing and location were equally disastrous, in contrast to the carefully planned (and relatively secluded) launch of the Uruguay Round, which began in 1986 in Punta del Este. And the industrial nations, led by the United States, did not even address one of the most vital issues: how developing countries can use technology and freer trade to better feed their populations. This need for "food security" touches on almost all the hot-button issues surrounding trade -- especially agricultural trade liberalization and genetically modified (GM) food -- yet the American media barely noted it. What does food security entail? First, it involves improving a developing nation's access to cheaper food from comparatively advantaged exporting countries. It is generally more efficient and cheaper than self-sufficiency, in which a nation tries to produce all crops that its population needs, regardless of the cost or the country's natural endowments. Food security also requires that richer countries lower their tariffs on all goods from developing countries so that emerging markets can earn cash to import the food they need. Finally, the drive for food security should tap the potential of GM technology for developing countries to both enhance nutrition and boost agricultural output. Rather than ushering in a new era in global economic interdependence, however, Seattle exacerbated the insecurity and palpable alienation among developing countries. The influence 0f environmental and labor groups was hurt by the presence of their radical fringes, which confirmed the worst fears of developing countries: that turtle suits and dolphin costumes are really forms of protectionist cross-dressing. It may have been a "defining moment" for the diverse array of groups who see the WTO as a symbol of multinational corporate power, but it is difficult to understand what exactly the moment defined. The summit did nothing but highlight the disarray among policymakers over trade issues. Back when trade policy was the realm of diplomats and economic experts, at least bids and offers were made. In contrast, the Seattle battleground resembled a war of many clans -- with no winners and no breakthroughs. CALLING MALTHUS Amid this impasse, a troubling problem at the heart of the trade policy debate is left unanswered. Notwithstanding current surpluses and depressed commodities prices, the world may become less able to feed itself in the 21st century. The International Food Policy Research Institute estimates that about 73 million people will join the world's population every year between 1995 and 2020, increasing it by 32 percent to 7.5 billion. Almost all the population growth will occur in developing countries, and much of it will be urban. Fortunately, per capita incomes will also increase, especially in developing countries. This will allow households to purchase more meat and animal products; demand for meat alone in the developing world is projected to double between 1995 and 2020. But to meet the needs posed by population and income growth, the world will have to produce 40 percent more grain by 2020. With yield increases slowing from the heady days of the green revolution in the 1970s, only about one-fifth of this increase is likely to come from expanding the amount of land under cultivation. In this context, trade will be increasingly vital to food security. Because cereal production in the developing world will not keep pace with demand, net cereal imports by developing countries will need to almost double between 1995 and 2020 (to nearly 200 million tons) to fill the gap. Net imports of meat will need to increase to 6.6 million tons, or eightfold. Although many antitrade activists in Seattle advocated a return to locally produced goods, including food, the hard truth is that developing countries need freer trade to feed themselves. The United States will continue to be central to this task; in 2020, about 60 percent of world net cereal imports will still come from the United States. This role does not simply reflect American dominance as a comparatively advantaged producer of grains and livestock. Eastern Europe, the former Soviet Union, the European Union, and Australia will also substantially increase their net exports. But if any of them, notably the former Soviet Union, fails to do so, the burden of supplying the rest will fall even more on net exporters like the United States. Assuming that production and trade keep pace with demand, per capita food availability in most developing countries will rise by about 10 percent from 1995 to 2020. Despite this, 135 million children under the age of 5 are projected to remain hungry in 2020, especially in sub-Saharan Africa and South Asia. In Africa, their number is projected to increase 30 percent by 2020. If production and trade do not keep pace with demand, a Malthusian specter of rapid population growth and dwindling food supplies could emerge. Even under the projections noted above, stagnating yield increases and growing demand will mean that real prices for food could actually rise, rather than fall as they have during the past quarter century. All these trends, which brought a boon to consumers when they lowered food prices, are unlikely to persist in the next century. The challenge of food security is therefore a race between productivity and populations with rising incomes. Here is where trade can make a difference. It enables food -- primarily grain -- to move from areas of surplus to areas of deficit, allowing the deficient regions to feed themselves as long as they can pay. Expanded access to rich-country markets also increases the export earnings of developing countries by raising the cash needed to buy food and other goods. Conversely, anything that restricts this movement or reduces the ability to pay for food imports will damage this capacity. Despite the tremendous significance of food security to trade, Seattle showed that the deep rifts over agricultural subsidies and market access, especially between the United States and the EU, remain largely unresolved. It also underscored the fact that environmentalists, who came to the negotiating table late in the Uruguay Round, now intend to be fully heard in agriculture as well as in other negotiating areas, even if they do not yet speak with a clear voice. Finally, Seattle made it clear that biotechnology -- whatever it may augur for world agriculture -- will be aggressively opposed as a symbol of globalization. The protesters in Seattle ignored the fact that trade can help the much larger and more pressing issue of food production and security. The world's ability to feed itself will rely on the international community's willingness to use trade as a way of moving food from surplus to deficit regions. It will also depend on whether countries adopt policies to sustain water, land, and forests and whether farmers turn to GM crops. In short, food security will emerge either as a consensus objective of international economic policy or as another battleground among competing national interests. GOING IT ALONE A government's perception of national interest too often causes it to hoard food stocks and artificially encourage production, ostensibly to buffer consumers against food shortages and increases in market prices. Even where the international market offers a source of food at cheaper prices, dependence on external sources is anathema to many politicians and their constituents in both the North and the South. Food self-reliance, even with its demonstrably higher costs, is a popular form of nationalism. Even when countries are net exporters of food -- as is the United States -- it is not unusual to see protectionist regimes erected for commodities in which foreign competition is seen as a threat. Prime examples are the U.S. sugar, wool, and mohair programs, which have been defended on national-security grounds as though they were government stores of strategic metals. The appeal to self-sufficiency is even greater where historical memories of privation and food shortage exist, as in Europe and Japan. A net food importer after World War II, Europe established a protectionist regime that encouraged domestic food production to reduce dependence on the rest of the world. Unfortunately, this system survived as Europe became a net exporter of wheat in the late 1970s. Surplus food was then subsidized for export to clear European markets. This created a domestic constituency dedicated to perpetuating both domestic and export subsidies, setting the stage for continuing battles with the United States, Canada, Australia, and others. Japan, the largest net importer of U.S. agricultural products, still clings to a rice policy that grossly subsidizes its domestic production and shuts out cheaper rice from abroad. Among developing countries, India represents an especially striking case of the pitfalls of self-sufficiency. Efforts to raise food production and reduce reliance on imports have dominated every five-year plan since the country's independence in 1947. With substantial government subsidies to wheat and rice, largely to the exclusion of other crops, India's wheat production is now ten times what it was in 1947. Today, it is the world's second-largest producer of rice, and it ties the United States as the second-largest producer of wheat. It has reduced food imports from a high of 10.5 percent of production in 1965 to almost nothing, and it even became a net exporter of both wheat and rice for a spell in 1995. Yet behind these achievements lurk more disturbing trends. As wheat and rice production and consumption have grown, production and consumption of important protein-rich foods -- chickpeas, pigeon peas, mung beans, and lentils -- have fallen. In fact, from 1960 to 1995, per capita supplies of protein from all plant products increased only modestly, from 47.3 to 48.7 grams a day; supplies of critical amino-acid proteins actually fell from 9,384 to 8,790 milligrams a day. As a result, more than half of the country's population is short of energy requirements and three-quarters do not meet minimum protein requirements; 624 million Indians remain malnourished. If India truly wishes to feed its citizens properly, it must accept greater food imports as a more rational and cheaper alternative to domestic wheat and rice subsidies. India is not alone. Self-sufficiency has reduced many nations' reliance on international trade as a source of cheaper food, allegedly on the grounds that the international market is insecure. But these schemes of hoarding and protection ultimately destabilize the international market, further reinforcing this sense of insecurity. Granted, freer global trade in food grains is not a sufficient condition for food security, especially when the low purchasing power of poor countries constrains access to these supplies. But it is a necessary step toward securing cheaper and more diverse sources of food. Sadly, the aversion that many developing countries have to food imports has less to do with such imports' purported instability than with their governments' aversion to free markets in general. Even if countries could benefit unilaterally by opening their domestic food markets, most politicians believe that no country should unilaterally "disarm" unless other countries make matching concessions. Hence, those countries at comparative disadvantage continue to insist that their trade barriers can be lowered only when others have made concessions -- despite the economic logic of comparative advantage. Each nation waits for others to make the first move toward liberalized trade before moving itself. MAKING THE ROUNDS Given the resistance to abandoning food self-sufficiency, countries need a mechanism for entertaining bids and offers in order to reach mutual concessions and break out of the food-security dilemma. This has been the role played by trade agreements, beginning in 1947 with the General Agreement on Tariffs and Trade (GATT), where bids and offers within and across sectors were swapped to achieve an ultimate package. Rather than realizing the neoclassical free-trade dream, GATT was about mutually managed mercantilism based on compromises. The same now applies to its successor, the World Trade Organization (WTO). Unfortunately, agriculture has always been one of the biggest sticking points. For the first seven rounds of GATT negotiations, until the Uruguay Round of 1986-93, agriculture remained largely off the table at the behest of the Americans and the Europeans, who argued that the topic was too sensitive to be subjected to the disciplines applied to manufacturing. The agricultural export-subsidy wars of the 1980s, which were brought on by European commodity surpluses, ended this mutual silence and created the conditions needed to tackle agricultural subsidies. Throughout the Uruguay Round, European agricultural interests supported the American NGOs that would do their bidding, arguing that freer trade harmed U.S. farmers as well as European ones. Yet this view was largely rejected by most (although not all) U.S. farming interests, which supported expanded U.S. agricultural exports. In the end, major liberalization still eluded negotiators, despite some modest arrangements on export subsidies, market access, and sanitary and phytosanitary measures. At the same time, environmental issues that touched agricultural trade liberalization began to emerge. This linkage arose partly from a burgeoning perception that growth through trade would undermine environmental quality, leading to a worldwide "race to the bottom." Although this pessimistic argument was not supported by empirical evidence, it retained a large following among environmental protectionists. In contrast, more optimistic groups saw a chance to protect environmental resources by using liberalization to enforce environmental oversight. But neither side dealt explicitly with how trade affected agriculture or food security -- until the emergence of the GM debate. GM food has now became a cause célèbre for consumer groups that had been relatively uninvolved in trade policy, lending strength to a coalition of antitrade activists that includes labor, environmentalists, and left- and right-wing groups anxious to protect national sovereignty. This new combination of forces has successfully used the "Frankenfood" issue to mask its protectionist elements while posing as the enemy of corporate multinationals. The initial opposition to GM food grew in Europe. It aimed first at American multinationals like Monsanto, one of the leading sellers of genetically modified corn, soybeans, and cottonseeds. When Monsanto indicated the possibility of a "terminator" gene that would render the offspring of GM plants sterile (thereby preventing farmers from producing seeds for replanting), a coalition of developing countries and European farmers formed to develop new trade barriers against the spread of these crops. Environmental pessimists now claim that GM technology could spread unwanted resistance to weeds and insects beyond the target species, potentially creating "superweeds" and other unwanted ecological side effects. For their part, consumer groups argue in fairly vague terms that GM food poses a threat to basic health and food-safety regulations. These activists also see GM issues as useful in getting traction from other groups to oppose trade liberalization, whether or not these allies are concerned with food. The new opposition threatens much more than the bottom line of companies such as Monsanto. It creates new problems for exporters of GM crops in the United States and elsewhere who had adopted the technology with enthusiasm, and for researchers who bet millions of dollars on the potential to help address disease and production issues for developing-world farmers. Most alarming is that these groups fail to understand what this discovery could do for developing countries. For example, new technology that raises beta carotene levels in rice -- the world's most widely consumed grain -- could effectively wipe out Vitamin A deficiencies within a decade. This would affect the lives, and prevent the deaths, of millions of poor children in developing countries -- if the technology can be successfully transferred to traditional rice growers. Despite the questions surrounding it, the rapid adoption of GM technology since 1996 suggests that it greatly appeals to farmers, at least in developed countries. Since then, the United States has seen the rapid commercial introduction of GM corn, cotton, tomatoes, and soybeans. By 1998, more than 500 genetically modified plant varieties were available in the United States, accounting for 28 percent of the land (2.57 million hectares) devoted to maize, soybeans, and cotton. Other countries, led by Argentina and Canada, also began planting hundreds of thousands of hectares with GM crops. These crops rapidly entered the supply chain for processed foods using corn, soybean, or cottonseed oils. Today, some 70-100 percent of processed foods everywhere may contain some GM material. In the developing world, the appeal of GM food remains uncertain despite the long-standing efforts of major funders, such as the Rockefeller Foundation, to harness the technology to aid poor farmers. Unfortunately, most developing countries possess few technical resources to develop their own scientific and management capacity for biotechnology. Doing so would need substantial flows of capital, human resources, and scientific information and expertise across national borders. Multinational companies heavily invested in GM technology could help by establishing training fellowships for scientists, bolstered by international agreements to protect the intellectual property rights of both companies and developing countries. Yet even if the South clears the technological hurdles to developing GM food, it may face continuing NGO opposition in the North. The GM issue connects agriculture, trade, the environment, and food security to form a complex relationship that cries out for a global structure of rules and disciplines. This is precisely what the much-maligned WTO system can provide. At the same time, these "Frankenfoods" have become central to the new protectionist case against the world trading system. The only way out of this quagmire is for the WTO to incorporate the successful concession-based approach of the past and tie food security and GM issues into a broader framework of regulations for trade, intellectual property, and the environment. The global problem posed by food security is inextricably linked to the development of the rules and agreements that operate at a level higher than the nation-state. Food security is a problem of collective national action that can be pursued only through multilateral policies, just like international commerce or environmental issues. GIVE A LITTLE To provide all these global collective goods, nation-states must be willing to grant concessions through negotiated agreements. In turn, these concessions should be seen as reciprocal contributions to a balanced package. For this tactic to work, countries must develop new forums or build up existing institutions to maintain the necessary multinational infrastructure. The first and most obvious step is to secure the commercial concessions under the terms of the WTO's next round of multilateral negotiations. In particular, progress must be made in agriculture toward increased market access and reduced export subsidies. Like the Uruguay Round, the next set of trade negotiations will face major resistance from farming interests, especially in the EU. Nevertheless, increasing food security will require agricultural trade liberalization -- and over time an end to the price instability generated by tariff distortions. Although recent measures such as Congress' Africa trade bill promise additional assistance to the poorest countries, the effectiveness of development aid is dwarfed by the potential for significant increases in access by all developing countries to rich countries' markets. This will require the dismantling of protectionist regimes in the United States and the EU for sugar, peanuts, textiles, and other commodities in which many developing countries hold comparative advantages. If these countries are allowed to expand their exports -- rather than receive handouts -- they will find a new engine of growth. A 10 percent increase in market access to U.S. sugar markets for Caribbean producers would do more to raise incomes in the Caribbean basin than has all of the development assistance provided in the last 25 years. Second, NGOs are correct in pointing out that new multilateral institutions must learn to deal with environmental challenges. They are wrong, however, in believing that the WTO should bear the blame. It is unreasonable and unwise to expect the WTO to assume responsibility for environmental issues unless they impinge directly on trade. Even then, it is doubtful that the WTO can tackle the manifold complexity of international environmental issues. For these reasons, many environmentalists have now joined the former director-general of the WTO in calling for a separate entity to address the need for rules on ecological interdependence, just like the WTO addresses the need for rules on commercial interdependence. A new "Global Environmental Organization," for example, would create a central authority to organize the hundreds of existing environmental agreements and protocols. Among other things, such an organization could assess the environmental implications of the expanding market for GM foods. Governments and the private sector will likely need to respond to calls for the labeling of foods and seeds. A system is therefore needed that could effectively use and develop GM technologies while allowing consumers to reject them if they wish. A Canadian survey of 8 countries found significant variation in consumer attitudes. For example, although 68 percent of all respondents said they would be less likely to buy groceries labeled as GM products, national responses ranged from a low of 57 percent in the United States to 82 percent in Germany. But the combination of consumer choice with freer trade would remove the chance that the GM issue could be exploited for protectionist purposes; consumers could choose between GM food and organic products without resorting to trade discrimination. As Alexander Haslberger, a leading European expert on biotechnology, noted in a recent contribution to Science, the significant public opposition to GM food will require that the industry adopt honest and appropriate labeling if it wants to avoid consumer resistance. One possible multilateral response could be under the auspices of the new biosafety protocol -- or the U.N. Food and Agriculture Organization's Codex Alimentarius -- to harmonize differing national standards. The Montreal talks last January, when more than 130 countries agreed on the Biosafety Protocol to the Convention on Biological Diversity, were a good start. The protocol discusses the environmental risks and benefits in biotechnology and creates a framework to protect biodiversity in developing countries. But many unanswered questions remain. Most prominent is whether the new protocol will allow a protectionist loophole for a "precautionary principle" that bars GM-food trade even if scientific evidence of harm is insufficient. Another central issue is the balance between trade restrictions justified on environmental or health grounds and the larger obligations of nations to trade without discrimination under the WTO. Last, the issue of food security itself cannot be used as an excuse to restrict market access. Nor can it be used to subsidize production in ways costly to the countries that need trade liberalization the most. But to reassure the countries and their citizens who are fearful of market forces, rules must be in place to provide guaranteed access to food in times of emergency. This can be accomplished by multilateral grain-sharing agreements that guarantee emergency concessionary terms. Here, as elsewhere, governments and the private sector must make a collective commitment to allay the fears of developing countries and address the calls of those most mistrustful of market forces and the dark side of globalization. Since developing countries now account for three-fourths of the WTO member nations, new trade agreements will not be reached without their support. The developing world has the power to block future WTO accords that they perceive as hostile to their interests. Given that food security is a major concern in many of these countries, a trade commitment to enhance this basic need could generate the goodwill necessary among developing countries to facilitate their cooperation across a range of global issues. A precondition for successful international cooperation is that all participants perceive a net benefit. True, not all countries gain equally from every international accord; in some instances, they may lose on specific issues. But commitments to food security could provide enough gains seen as necessary by developing countries to win their cooperation on a range of other issues important to the industrial nations, such as the environment and intellectual property rights. Henry Kissinger remarked after Seattle that President Clinton "could have used the occasion to put forward a farsighted program for dealing with what portends to be one of the greatest challenges of the new century: the huge gap between the sophistication of É globalization, and traditional political thinking still based on the nation state." Bridging this gap has thus far escaped the presidential candidates, whose international views are simply extensions of domestic interest-group politics. A larger and more comprehensive multilateral vision, which recognizes a legitimate and growing role for developing countries -- and food security in particular -- would ultimately benefit the United States. Realizing this vision will require more and better international institutions, not fewer and worse ones.

How Ethanol Fuels the Food Crisis By C. Ford Runge and Benjamin Senauer From foreignaffairs.org , May 28, 2008 Summary: Runge and Senauer's update to their May/June 2007 essay "How Biofuels Could Starve the Poor." C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law at the University of Minnesota. Benjamin Senauer is Professor of Applied Economics at the University of Minnesota. In the year since the publication of our article, "How Biofuels Could Starve the Poor" (May/June 2007), the average price of corn has increased by some 60 percent, soybeans by 76 percent, wheat by 54 percent, and rice by 104 percent. What at first seemed alarmist has turned out to be an underestimate of the effects of biofuels on both commodity prices and the natural environment. These price increases are substantial threats to the welfare of consumers, especially in poor developing countries facing food deficits. They are especially burdensome to the rural landless and the urban poor, who produce no food at all. Josette Sheeran, the Executive Director of the World Food Program, calls this a global "tsunami of hunger." Robert Zoellick, President of the World Bank, estimates that there are 100 million newly poor and hungry people as a result of rising food prices. Although controversy remains over how much of the food price increase since 2006 can be attributed to biofuels, their effects cannot be overlooked. In 2008, 30 percent of the U.S. corn crop will be used for ethanol. Although economic growth in developing countries (especially India and China) and poor crop conditions in certain parts of the food-exporting world (such as Australia) are part of the explanation for rising commodity prices worldwide, neither offers constructive opportunities for policy redirection. By contrast, the panoply of subsidies, tariffs and mandates protecting the biofuels sector, especially in the United States and the European Union, is ripe for reform. Last year, we predicted that upward pressure on petroleum prices would persist, allowing ethanol producers to pay higher and higher prices for corn. At the time, oil prices were approximately $70 per barrel and rising while corn prices were roughly $3.75 per bushel and rising. But few observers, ourselves included, imagined that within a year oil prices would reach $130 per barrel and corn futures would exceed $6 per bushel. Meanwhile, despite a near doubling of U.S. corn ethanol production (from 3.4 billion gallons in 2004 to 6.5 billion gallons in 2007), infrastructure and distribution problems created local gluts of ethanol while the ethanol price increased only moderately. As a result, profit margins in the ethanol industry plummeted from an average of $3.40 per gallon in June 2006--when corn was still relatively cheap--to 60 cents per gallon by May 2008. Many ethanol investors pulled back, some expansion plans were cancelled, and much of the bullishness over biofuels faded. Moreover, the supposedly "green" virtues of biofuels are not quite what they seemed. In fact, biofuels pose major risks to the environment. In October 2007, the Nobel Prize winning chemist Paul Crutzen, who pioneered the atmospheric science of ozone depletion, co-authored an article demonstrating that the heavy application of nitrogen fertilizer on corn (for ethanol) and on European rapeseed (for vegetable-oil biodiesel) would produce such high levels of atmospheric nitrous oxide--which is 296 times more damaging as a greenhouse gas than carbon dioxide--that it would have a net negative effect on greenhouse gas emissions. In early 2008, two articles in showed that forests or grasslands converted for the production of biofuels will immediately incur a "carbon debt," due to the release of carbon dioxide from biomass and soil. This long "payback" for biofuels is disappointing in light of the urgency of global warming. The second study demonstrated that biofuel production often displaces crops, moving them to new areas where further land-use conversions are required. In the Corn Belt of the Midwest, biofuels helped to convert nearly 20 million acres from soybean production to corn production in 2007, pushing soybean prices higher while encouraging extensive applications of nitrogen and phosphorus fertilizers that run off into lakes and streams, enter the Mississippi River, and eventually reach the Gulf of Mexico where they have created an oxygen-starved "dead zone." The authors found that such land-use changes nearly double greenhouse emissions over 30 years, and increase greenhouse gases for 167 years. The current biofuels craze is neither clean nor green. Instead, it has disrupted food and commodities markets and inflicted heavy penalties on poor consumers. These developments have occurred despite record global grain harvests in 2007. Our analysis (and virtually everyone else's), assumes that normal trends in grain yields will continue or improve. But U.S. corn yields, despite dramatic increases over the last half-century, have also shown significant departures from trend, including decreases of roughly 30 percent in some years due to adverse weather. Planting delays this spring in the Corn Belt due to wetter, cooler conditions are beginning to raise concerns about this year's crop. And, as reported recently in the , many economists "believe that food inflation will rise faster than the USDA estimate and likely continue into 2009." The policy response to these pressures, in both rich and poor countries, has not been encouraging. Rather than reducing the mandates, subsidies, and tariffs that buttress the ethanol industry, the U.S. government has larded new agricultural legislation in Congress with further subsidies and shifted blame to other countries (or to economists). The one token reduction came in the recent farm bill, which trimmed the ethanol subsidy from 51 to 45 cents per gallon--hardly a significant change. Political protests and riots related to rising food prices have occurred in a number of developing countries including Egypt, Guinea, Haiti, Indonesia, Mauritania, Mexico, Morocco, the Philippines, Senegal, and Yemen. In response, several governments have increased food subsidies, imposed price controls, restricted exports, and cut duties on food imports. Russia has imposed a 40 percent tariff on wheat exports, essentially halting them. Argentina, normally a major wheat exporter, has slowed exports. Vietnam, usually the second largest rice exporter after Thailand, has banned rice exports at least until the new crop comes to market. These trade restrictions reduce the supply available on the world market and drive global prices of these grains even higher, aggravating global price instability. Nearly a decade ago, we published an article in ("A Removable Feast," May/June 2000) calling attention to global food insecurity and warning that distractions from the role of trade and investment in poor developing countries could erase the positive impact that increased agricultural productivity has had when it comes to reducing global hunger. Biofuels have become just such a distraction, threatening both food security and the natural environment. It is now time for governments to respond, not with more trade distortions and subsidies, but by ending the failed policies that have created an artificial industry that is emptying the stomachs and purses of the world's poor.