Opposition to the U.S. biofuel policy is growing, if bloggers are any indication, and that poses a real threat to the agriculture boom that has been driving up Canadian stocks like Potash Corp. of Saskatchewan Inc. and Agrium Inc.
James Hamilton, who writes the EconBrowser blog and is a professor of economics at the University of California, San Diego, noted that there are many factors influencing food prices these days. “But to me it's natural to begin with the element that represents a deliberate policy choice on the part of the United States,” he said. “I refer to America's decision to divert a significant part of our agricultural production for purposes of creating a fuel additive for motor vehicles.”
According to the statistics he cites, 31 per cent of the U.S. corn crop will be directed toward ethanol production in the 2008-2009 season. That raises a moral question, since the diversion appears to be driving up food prices elsewhere in the world, leading to rioting in particularly poor areas.
But just as important, it raises the question of whether the U.S. is being efficient with its resources. “As a result of ethanol subsidies and mandates, the dollar value of what we ourselves throw away in order to produce fuel in this fashion could be 50 per cent greater than the value of the fuel itself. In other words, we could have more food for the Haitians, more fuel for us, and still have something left over for your other favorite cause, if we were simply to use our existing resources more wisely,” Mr. Hamilton said.
Could it become an election issue if higher food prices begin to hurt Americans as well? He noted that Barack Obama voted in favour of the 2005 Energy Bill – the one that made ethanol a priority – while Hillary Clinton and John McCain voted against it.
