Tyler Cowen is an economist with a heart. He thinks he knows that protectionism and subsidies are ever and always a Bad Thing, but at the same time he can’t bring himself to say anything too bad about tortilla subsidies in Mexico.
My head knows what is right but my heart is torn. Can Mexico can afford the protectionism which keeps local producers going and gives it the world’s best and most diverse corn, the world’s best tortillas, and supports a major part of its national identity, most of all for its most oppressed and politically sensitive groups? I am emotionally torn and will not proceed with the question any further.
If you’re going to have subsidies, in other words, then subsidizing tortilla prices is a really good way to funnel a much-needed good to the poor. (Tortillas account for half of poor Mexicans’ calories, and have been rising in price as corn prices soar in hopes of a future built on corn ethanol.)
In the May/June issue of Foreign Affairs, Ford Runge and Benjamin Senauer say quite explicitly that biofuels in general, and corn ethanol in particular, will “exacerbate world hunger”.
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.
Meanwhile, the article notes, US corn subsidies were $8.9 billion in 2005 alone. If the US is really serious about moving towards ethanol and biofuels, at the very least it should abolish import restrictions on Brazilian sugar ethanol, which is much cheaper and more efficient than US corn ethanol in any case.
But there is a humanitarian case for taking a second look at the whole issue of biofuels in general. Back to the Foreign Affairs article:
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.