Elisabeth Rosenthal with the New York Times writes that demand by wealthier nations for biofuels plays a role in rising food prices, and may contribute to fueling unrest in Africa and the Middle East. While the article’s main focus is on China’s rising demand for biofuels, the US ethanol policy certainly deserves its own share of the blame:

This year, the United Nations Food and Agriculture Organization reported that its index of food prices was the highest in its more than 20 years of existence. Prices rose 15 percent from October to January alone, potentially “throwing an additional 44 million people in low- and middle-income countries into poverty,” the World Bank said.

Soaring food prices have caused riots or contributed to political turmoil in a host of poor countries in recent months, including Algeria, Egypt and Bangladesh, where palm oil, a common biofuel ingredient, provides crucial nutrition to a desperately poor populace. During the second half of 2010, the price of corn rose steeply – 73 percent in the United States – an increase that the United Nations World Food Program attributed in part to the greater use of American corn for bioethanol. …

Biofuels development in wealthier nations has already proved to have a powerful effect on the prices and the cultivation of crops. Encouraged by national biofuel subsidies, nearly 40 percent of the corn grown in the United States now goes to make fuel, with prices of corn on the Chicago Mercantile Exchange rising 73 percent from June to December 2010.

Carrie Lukas wrote about this issue in mid-March, asking “how bad does it have to get before we end this completely counterproductive policy?” Just last year, politicians on both sides of the aisle who renewed ethanol subsidies as part of the tax-cut extension bill didn’t think it was bad enough yet.

Paul Ryan’s budget suggests that it will cut corporate energy subsidies, and I certainly hope that it will end subsidies to ethanol once and for all. Subsidies alone are not the only problem though, US ethanol receives triple support: direct subsidies, consumption mandates, and high tariffs shielding it from foreign biofuel competition. Ending the direct subsidy is a good start, but in the long run we also ought to reconsider the consumption mandate which is scheduled to increase from 12 billion today  to 36 billion by 2022. If our current ethanol policy already consumes 40 percent of the corn grown in the US, what outrageous food price increases can we expect from tripling the current mandate in just over a decade?

As long as the government is in the business of picking favorites in energy, we are poised to end up with counterproductive policies whose benefits accrue to the very few, but powerfully connected.