http://www.becker-posner-blog.com/archives/2008/04/rising_food_pri_1.html

http://www.nytimes.com/2008/04/18/world/americas/18food.html

1. Why are food prices rising across the world? In the U.S?

Food prices are rising due to the increase usage of corn in ethanol production. This takes extra corn away from the food supply. The ripple effect has moved over to other grains, since there is less corn, they are feeling the effects in added demand for their use as a substitute. Even meat and poultry products are feeling the effects because of the increased cost in feed. The U.S. uses 25% of corn produced for ethanol production! This is outrageous, on top of that according to the USDA projected corn production is expected to be down 8% for 2008 in the U.S. due to farmers planting other grains to take advantage of other grains higher prices.

2. Is this a short-run or a long-run problem? Why?

It is a short-run problem that if not addressed quickly and properly could turn into a long-run crisis. Oil is at record prices, so we looked to ethanol to help alleviate some of the pressure put on the oil supply. The issue is that the U.S. uses corn to produce their ethanol to substitute for oil, but this is a major cause of the increases in food prices, and as long as we are using corn for this purpose it will continue to put pressure on food prices. The U.S. uses about 20 – 30% of its farmland for biofuel production, this farmland could be used for food production of course.

3. Are there any solutions to this on the horizon?

There are many alternatives to corn ethanol production that would help relieve some of the pressures that it has put on our food prices. Brazil has had tremendous success with sugar ethanol production and has become energy self sufficient. In addition they have a nation wide ethanol network and 90% of the automobiles manufactured in Brazil run on ethanol. Will this work for everyone, I don’t think so, but we can follow Brazil’s example. Sugar ethanol production does not take away sugar from our food supplies and the farmland used to produce sugar has taken away about 2-3% of land from grazing land for cattle, although, this has not hindered their beef production. In the U.S. the first algae biofuels plant went online April 1st in Texas. Biofuels from algae produce 30 times more energy per acre than corn or soy, so this is a start.

**4/21/08 my discussion board post for my Economics of Mgmt and Strategy. What are your thoughts/comments?