World Bank: Food prices at "dangerous levels"

by Christopher Leonard, Ap Agribusiness Writer – Tue Feb 15, 4:39 pm ET

ST. LOUIS – Global food prices have hit "dangerous levels" that could contribute to political instability, push millions of people into poverty and raise the cost of groceries, according to a new report from the World Bank.

The bank released a report Tuesday that said global food prices have jumped 29 percent in the past year, and are just 3 percent below the all-time peak hit in 2008. Bank President Robert Zoellick said the rising prices have hit people hardest in the developing world because they spend as much as half their income on food.

"Food prices are the key and major challenge facing many developing countries today," Zoellick said. The World Bank estimates higher prices for corn, wheat and oil have pushed 44 million people into extreme poverty since last June.

The report comes a day before Finance ministers and central bank chiefs from the Group of 20 leading economies meet in Paris. Zoellick said he's worried some countries might react to food inflation by banning exports or implementing price controls, which would just aggravate the problem.

The World Bank's food price index rose by 15 percent between October and January alone. The increase has been driven by volatile global trading in wheat, corn and soybeans. Global corn futures more than doubled since this summer, from $3.50 to $7 a bushel, in part because of higher demand from developing countries and a growing biofuels industry.

Prices are rising in part because global grain traders have gotten jittery about historically low reserve levels of corn, wheat and soybeans, said Chris Nagel, an analyst with Northstar Commodity in Minneapolis. Growing demand from customers in China and elsewhere is putting pressure on the supply of most commodities, he said.

The U.S. Department of Agriculture predicted last week U.S. corn farmers will have just 675 million bushels of corn at the end of August, before next year's harvest begins. That's just an 18-day supply, Nagel said.

The slim reserves mean traders will likely bid up crop prices further at any weather event that reduces next year's planting.

"We need to get good crops, all around the world, in all of these commodities," Nagel said. "You just don't have much foot room for error.

The global price of fats and oils rose 22 percent and wheat rose 20 percent between October and January, according to the World Bank. The prices of sugar rose by 20 percent in that time.

Industrialized nations like the United States are insulated from the price increases because raw ingredients account for just a fraction of the total food costs. But in many developing counties, prices get transmitted more drastically.

Between June and December, wheat prices climbed 54 percent in Kyrgyzstan, 45 percent in Bangladesh and 16 percent in Pakistan, for example.

Zoellick warned that higher prices could stoke political instability in countries like Egypt and Tunisia. Both countries are big wheat importers and higher grain costs could aggravate social unrest as the countries form new regimes, he said.

"That's where the international system needs to try to be aware of these issues, and try to do things at a minimum not to exacerbate food prices," he said.

International Speculation and Rising Food Prices

Yet Another Reason to Drop the Dollar
By UMBERTO MAZZEI

Henry Kissinger once said that whoever controls food controls people. In other words, everyone surrenders when they see their children starve. That is how the U.S. government subdued the American Indians defending their lands, by exterminating the bison that provided them food and instead handing out food on reservations. The British government did the same to subdue the Boer republics in South Africa by forcing the Boer civilian population into the first concentration camps ever and letting them starve.

International cartels now use their control over the global food supply to make huge profits. There are six major corporations that control the purchase and sale of agricultural products: Cargill, Kraft, Bunge & Born, ADM (Archer Daniels Midland), Nestlé and General Mills. Food prices are set at exchanges in Chicago, New York and London.

Some countries shield their population from commodity speculation on basic foods by restricting the export of their agricultural staples until domestic demand is satisfied. This has a clear and legitimate purpose: to stabilize domestic prices and ensure supply for their own people. Domestic prices are also an uncomfortable testimony of real prices and temper full international market control over pricing.

On January 22, agriculture ministers from 50 countries met in Berlin, to examine the rise of international prices of commodities during the second half of 2010. Before the assembly, World Trade Organization (WTO) director, Pascal Lamy, earned merits with the global food cartels by attacking export restrictions. No doubt hoping that the cartels will hire him when he loses his present position, Lamy attributed the record high international prices of agricultural products to the export limits that some countries apply. His claim was a classic case of sophistry—a distortion of the truth with a false arguments.

"Export restrictions are a prime cause of current and recent surges in global food prices, and countries should find other ways to secure domestic supplies," the WTO chief said. "Export restrictions lead to panic in markets when different actors see prices rising at stellar speed," he added.

Mr. Lamy illogically ignores the fact that a sudden rise in agricultural commodity prices, as reported three weeks ago by the UN Food and Agriculture Organization (FAO), cannot be attributed to controls that have always been there. Those controls, as he acknowledges, are imposed to assure supply to the population of the producing countries and, although Lamy did not say it, also to stabilize national and to an extent, international agricultural prices. This last point is very annoying to the cartels that dominate international food trade.

After attacking export restrictions, Mr. Lamy stated that exporting countries seek other ways to assure their own national supply. But here his proposals for a different approach are misleading. Lamy called for an increase in global food production, "more social safety nets, more food aid and food supplies and …humanitarian aid exempt from export restrictions."

Let's look first at the call for an increase in global food production. Countries that now must import food used to feed themselves until free trade and the export subsidies of rich countries ruined their farmers. The WTO unfairly allows subsidies in some countries and prohibits them in others. More production in countries that subsidize exports would worsen the rural crisis in the Third World.

Furthermore, high prices will not in this case spur more production because they do not obey demand, which is relatively stable, and the price increase does not reach producers. Speculators and price manipulators are the ones who profit from those sudden rises. An increase in food production to stabilize prices would be beneficial only if it happens in those countries that lost their self-sufficiency in agriculture. For that, it is necessary to eliminate export subsidies and other aids that distort agricultural prices.

Lamy also called for an increase in food aid. Food aid has historically played an important role in crippling local food production, functioning as a tool to displace and destroy local farms. There are cases in which food aid is imposed as an import quota; for example, Guatemala is forced to accept a share of "help" it does not need. Another example is Honduras, which was self-sufficient in rice before Hurricane Mitch. The natural disaster opened the gates to thousands of tons of U.S."aid" rice, subsidized at 80%. Prices tumbled and killed domestic production. Finally, the case of Haiti is now notorious because President Bill Clinton acknowledged his guilt in the destruction of Haitian agriculture by imposing U.S. food aid "manu militari" and forcing the Haitian government to obey the prescription of the IMF to lower its rice tariff from 35 % to 3%. All these experiences seem lost on Mr. Lamy.

Lamy summed up his attitude toward the challenge of rising food prices: "Globally, what we would be likely to see as a result of Doha [WTO Round] is more food being produced where this can be done more efficiently." It is very unlikely that the Doha Round will ever acomplish this goal. The Doha Round was accepted by developing countries because of the mandate to eliminate subsidies that distort agricultural prices. But negotiations are stuck because rich countries do not want to reduce their subsidies, and yet demand more openness to their exports, more concessions on intellectual property and services, and a drastic reduction in the space for national economic policies.

Food Speculation

The IMF ordered fiscal austerity for those European governments that ruined themselves by paying off the debts of private banks, but it has failed to mention the subsidies of the European Common Agricultural Policy (CAP). Neither does the new Republican majority in the U.S. Congress mention farm or export subsidies when they ask for public spending cuts. The problem is not subsidies but who receives them–giant food transnationals make huge profits off these subsidies. Instead of analyzing the impact of these subsides, the IMF continues to recommend austerity measures focused on removing protections against poverty at a time when there is a steep rise in food prices and unemployment.

We are seeing an increase in global impoverishment caused by practices that enrich bankers and global commodities speculators. Mr. Lamy and the members of the G-20 who accuse export restrictions for rising food prices should take a closer look at the impact of speculation and turn their attention to the means and tools that are at the bottom of the rising prices. Yet at the meeting, they pointedly did not even mention speculation.

Economic theory says that prices follow the law of supply and demand. As long as human beings have a single stomach, there cannot be a sudden increase in demand for food. We may begin to hear, as in 2008, the tale that prices rose because of grain demand to produce ethanol. The argument has been proven false as an explanation for the sudden price hikes. There was no increase in ethanol production and grain prices fell as fast as they rose without an increase on agricultural activity. It is clear that the starving and suffering of billions in 2008 was the work of greedy price speculators.

The mainstream media tends to do little research and repeats whatever comes out of the mouths of those on high. Droughts and floods are not the leading cause of spikes in global food prices. Nor are export restrictions. The spikes are the work of manipulation in commodity markets where global prices are set. The physical existence of a commodity is not even necessary to create a price, because real goods are not always bought or sold or delivered, even though their prices are listed in mercantile exchanges.

Listings are typically based on the index commodity funds, which are bets on the mercantile exchange performance of a specific agricultural commodity. Handling is coordinated between institutional brokers, financial institutions and global merchants. They bet on the rise or fall of a specific product and then manipulate the price to win the bet. To make a profit it is enough to sell options without ever actually owning an existing product somewhere. Speculators don't only make a profit when prices rise; they can also bet and make a profit when commodity prices collapse, by so-called "short selling. "

From 2006 to 2008 commodity prices rose scandalously, especially rice, wheat and corn. A tonne of rice rose from $600 in 2003 to $1,800 in 2008. After causing popular unrest in the world, prices fell as quickly as they climbed. Further proof that the cause was not supply and demand.

The current crisis looks even worse. The last FAO report states that cereals price rose 32% in the second half of 2010 and the composite price index of sugar, meat, milk, cereals and oilseeds in December exceeded 2008 levels. If speculation is left unchecked, this time there will be riots in Europe as well.

The Dollar's Role

A fundamental cause of price instability is the weakness of the dollar. A currency that has devalued 400% against gold and 60% against the Swiss franc in only four years cannot be the reference for commercial value. The dollar devaluation caused loss of purchasing power to all wages, pensions and fixed incomes in the world, but also the actual reduction of all dollar-denominated debts. Therefore, it is not admissible that the most indebted country in the world ensures the stability of values in international trade or the stability of anything.

It is a situation that has gradually gotten worse since 1971, when the United States defaulted on its debts and repudiated the gold standard. The total amount of dollars and dollar-denominated securities issued since then by the Federal Reserve and by the financial institutions supported by the Fed, surpasses the U.S. GDP and even the World Gross Product. It is a debt that cannot be paid.

The only way to obtain price stability and start a global economic recovery is to drop the dollar, assume a more rational value for reference, and discipline the operation of financial and mercantile exchanges in London, New York and Chicago. That is what the Davos gathering of international leaders should have considered, but did not. Instead they focused, as always, on recipes for maintaining their own immediate and exclusive prosperity in a starkly unequal world.

Higher food prices here to stay

by Paul Handley – Sun Feb 6, 2011

WASHINGTON (AFP) – From McDonald's burgers in the United States to sugar in Bolivia and chilis in Indonesia, food prices across the globe are soaring.

But consumers and governments should brace themselves for even higher prices, experts warn, as demand in populous emerging economies will put pressure on supplies for years to come.

A "perfect storm" of bad weather, rapid growth in emerging economies -- with people eating more higher-value, resource-intense food -- and low interest rates has sent prices for a broad range of farm and non-farm commodities climbing often at double-digit rates: from wheat to corn, cotton to rubber, and oil to boot.

And while it resembles the sharp spike in food and oil prices of 2007-2008, analysts say the current trend is less speculative in nature and not likely to end with a price collapse, as it did two years ago.

"Things were quite different in 2008... You had price spikes, it was a couple of food grains," said Chris Delgado, an agriculture specialist at the World Bank.

"What is going on now is more broadbased... It's not led by grains."

And it's widespread, and feeding into political worries, not just in the Middle East.

In Indonesia, where even the price of chilis has soared, the government suspended import duties on key food items after inflation hit an annual rate of seven percent in January.

In Bolivia, sugar is being rationed despite a 64 percent price hike.

In the United States, much higher meat prices are forcing restaurants from fancy steak houses to McDonald's to hike their prices, even though the pocketbooks of consumers remain tight.

On Thursday, the UN Food and Agriculture Organization said food prices have reached their highest level since it began measuring them in 1990, and pointed to the political problems that can spark.

"Not only is there a risk, but there have already been riots in some parts of the world because of rising prices," FOA chief Jacques Diouf said.

There is little relief in sight, say experts.

"I think commodity prices are going to be trending higher," said Gerard Lyons, chief economist for Standard Chartered Bank.

"What's interesting is that even commodities that aren't heavily traded are rising in price. ... That suggests this is fundamental, not speculators," he told AFP.

The 2008 commodity spike was only a handful of food grains plus oil, and driven in large part by political decisions amounting to hoarding and heavy trader speculation.

This year the problem is more fundamental: prices are being driven by growing demand from huge emerging economies like China, India, Russia and Brazil that is unlikely to slacken until prices get much higher, say analysts.

The World Bank's Delgado said that supply shocks are exacerbating the price hikes: weather and policy moves that have cut grain supplies from Russia, Argentina and Australia, among others.

But the trend is rooted in the fundamentals of soaring demand, say economists.

"More and more people are moving up the scale of income, so they tend to have higher value food," said Nariman Behravesh, chief economist at IHS Global Insight.

Lyons said there is not much relief on the horizon because of the time it takes farmers to expand acreage and production.

"It takes a long time, two to three years, for new supply to come on stream," Lyons said.

"I think commodity prices are going to be trending higher."

Commodity traders are saying the same thing.

Last week Morgan Stanley commodities specialist Hussein Allidina said key items like corn, soybeans and wheat still face strong upward price pressure -- with corn possibly going up another 20 percent from the current level of $6.60 a bushel before demand weakens.

"We see record tightness across the agriculture complex and believe that higher prices will be necessary to ration demand and incentivize acreage," he said in a report.

Behravesh said he thinks the problem is mainly a short-term one, more like 2008, and have limited economic impact overall.

But policy-wise, he said governments don't have many tools to bring down the cost of food and other commodities, especially if they are import-dependent.

Aside from pushing up interest rates to slow growth, said Behravesh, "There's not much central bankers can do about food prices."

Global Food Prices Hit New Record High

Global food prices have hit a new record high, amid fears that the escalating cost of bread and meat is adding to the turmoil in the Middle East.
Thursday, February 3, 2011 by the Telegraph/UK
by Harry Wallop

The United Nations Food and Agriculture Organization (UN FAO) gave warning that the high prices, already above levels in 2008 which sparked riots, were likely to rise further.

The FAO measures food prices from an index made up of a basket of key commodities such as wheat, milk, oil and sugar, and is widely watched by economists and politicians around the world as the first indicator of whether prices will end up higher on shop shelves.

The index hit averaged 230.7 points in January, up from 223.1 points in December and 206 in November. The index highlights how food prices, which throughout most of the last two decades have been stable, have taken off in alarming fashion in the last three years. In 2000 the index stood at 90 and did not break through 100 until 2004.

Surging food prices have come back into the spotlight after they helped fuelled protests that toppled Tunisia's president in January. Food inflation has also been among the root causes of protests in Egypt and Jordan, raising speculation other nations in the region would secure grain stocks to reassure their populations.

Abdolreza Abbassian, an economist at the FAO, said: "The new figures clearly show that the upward pressure on world food prices is not abating.

"These high prices are likely to persist in the months to come. High food prices are of major concern especially for low-income food deficit countries that may face problems in financing food imports and for poor households which spend a large share of their income on food."

Experts point out that, in theory, the situation is not as bad as in 2007 to 2008, when the world faced a genuine shortage of food. This time around there are plenty of stocks, particularly wheat, that are being stored. In Britain arable farmers have been sitting on grain from last year's harvest and been able to sell wheat at £200 a ton, double the price of just a few years ago.

Experts said that hoarding of food by some governments was making the problem worse.

In the run-up to the 2007/2008 food price crisis, the World Bank estimated that some 870 million people in developing countries were hungry or malnourished. The FAO estimates that number has increased to 900 million.

Robert Zoellick, the president of the World Bank, urged global leaders to "put food first" and wake up to the need to curb increased price volatility.

"2008 should have been a wake-up call, but I'm not yet sure all the countries in the world that we need to support this have woken up to it," he said.

Indonesia, southeast Asia's biggest economy, last week bought 820,000 tonnes of rice, nearly five times what it had originally set out to buy, lifting rice prices - although rice is one commodity that remains well below its 2008 prices. It has also suspended import duties on rice, soybeans and wheat.

Algeria last week said it had bought almost a million tonnes of wheat, bringing its bread wheat purchases to at least 1.75 million since the start of January, and ordered an urgent speeding up of grain imports, a move aimed at building stocks.

Wayne Gordon, a grains analyst for Rabobank, said: "Some of the demand story is centred around high food prices then tend to lead to hoarding by a number of countries into their strategic reserves.

"So not only are they purchasing for current consumption, but they are also trying to build up strategic reserves, which basically are a bit of a double-barrelled demand event."

Severe drought in the Black Sea last year, heavy rains in Australia and dry weather in Argentina and anticipation of a spike in demand after unrest in north Africa and the Middle East has also helped drive grain prices even higher.

The FAO's Sugar Price Index soared to a record high of 420.2 points from 398.4 points in December.

Its Cereals Price Index, which includes prices of main food staples such as wheat, rice and corn, rose to an average of 244.8 points in January, the highest level since July 2008 but below its peak in April 2008, the data showed.

The Oils Price Index rose to 277.7 points in January from 263.0 points in December and came close to the June 2008 record level.

How Many Senators Does It Take to Screw a Taxpayer

HOW MANY SENATORS DOES IT TAKE TO SCREW A TAXPAYER?

15th January 2011

“Today, the government decides and they misdirect the investment to their friends in the corn industry or the food industry. Think how many taxpayer dollars have been spent on corn [for ethanol], and there’s nobody now really defending that as an efficient way to create diesel fuel or ethanol. The money is spent for political reasons and not for economic reasons. It’s the worst way in the world to try to develop an alternative fuel.” - Ron Paul

When bipartisanship breaks out in Washington DC, check to make sure your wallet is still in your pocket. Every time you fill up your car this winter you are participating in the biggest taxpayer swindle in history. Forcing consumers to use domestically produced ethanol is one of the single biggest boondoggles ever committed by the corrupt brainless twits in Washington DC. Ethanol prices have soared 30% in the last year as the supplies of corn have plunged. Only a policy created in Washington DC could drive up the prices of gasoline and food, with the added benefits of costing the American taxpayer billions in tax subsidies and killing people in 3^rd world countries.

The grand lame duck Congress tax compromise extended a 45-cent incentive to ethanol refiners for each gallon of the fuel blended with gasoline and renewed a 54-cent tariff on Brazilian imports. The extension of these subsidies, besides costing American taxpayers $6 billion per year, has the added benefit of driving up food costs across the globe, causing food riots in Tunisia, and resulting in the starving of poor peasants throughout the world.

This taxpayer boondoggle is a real feather in the cap of that fiscally conservative curmudgeon Senator Charley Grassley. He was joined in this noble effort by another fiscal conservative, presidential hopeful John Thune. It seems these guys hate wasteful spending, except when it benefits their states. The bipartisanship in this effort was truly touching, as Democrats Kent Conrad and Tom Harkin also brought home the pork for their states.

A bipartisan group of 15 senators signed a letter in late November demanding an extension of U.S. ethanol subsidies. I wonder if the fact they have received hundreds of thousands of dollars in campaign contributions during the past six years from pro-ethanol companies and interest groups like ADM, Monsanto, the National Corn Growers Association, and the Iowa Renewable Fuels Association had anything to do with this demand. You can always count on a Senator to do what’s best for his re-election campaign rather than what is best for the country. These symbols of political integrity will always spout the standard talking points:

• Promoting ethanol reduces our dependence on foreign oil

• Ethanol is green renewable energy

• Ethanol is cheaper than gasoline

As we all know when dealing with a politician, “half the truth, is often a great lie.”

Amaizing

Corn is the most widely produced feed grain in the United States, accounting for more than 90% of total U.S. feed grain production. 81.4 million acres of land are utilized to grow corn, with the majority of the crop grown in the Midwest. Although most of the crop is used to feed livestock, corn is also processed into food and industrial products including starch, sweeteners, corn oil, beverage and industrial alcohol, yogurt, latex paint, cosmetics, and last but not least, fuel Ethanol. Of the 10,000 items in your average grocery store, at least 2,500 items use corn in some form during the production or processing. The United States is the major player in the world corn market providing more than 50% of the world’s corn supply. In excess of 20% of our corn crop had been exported to other countries, but the government ethanol mandates have reduced the amount that is available to export.

This year, the US will harvest approximately 12.5 billion bushels of corn. More than 42% will be used to feed livestock in the US, another 40% will be used to produce government mandated ethanol fuel, 2% will be used for food products, and 16% is exported to other countries. Ending stocks are down 963 million bushels from last year. The stocks-to-use ratio is projected at 5.5%, the lowest since 1995/96 when it dropped to 5.0%. As you can see in the chart below, poor developing countries are most dependent on imports of corn from the US. Food as a percentage of income for peasants in developing countries in Africa and Southeast Asia exceeds 50%. When the price of corn rises 75% in one year, poor people starve.

The combination of an asinine ethanol policy and the loosest monetary policy in the history of mankind are combining to kill poor people across the globe. I wonder if Blankfein, Bernanke, and Grassley chuckle about this at their weekly cocktail parties while drinking Macallan scotch whiskey and snacking on mini beef wellington hors d’oeuvres. The Tunisians aren’t chuckling as food riots have brought down the government. This month, the U.N. Food and Agricultural Organization (FAO) reported that its food price index jumped 32% in the second half of 2010 — surpassing the previous record, set in the early summer of 2008, when deadly clashes over food broke out around the world, from Haiti to Somalia.

Let’s Starve a Tunisian

“What is my view on subsidizing ethanol and farmers? Under the constitution, there is no authority to take money from one group of people and give it to another group of people for so called economic benefits. So, no, I don’t think we should do that. Besides, bureaucrats and the politicians don’t know how to invest money.” - Ron Paul

The United States is the big daddy of the world food economy. It is far and away the world’s leading grain exporter, exporting more than Argentina, Australia, Canada, and Russia combined. In a globalized food economy, increased demand for corn, to fuel American vehicles, puts tremendous pressure on world food supplies. Continuing to divert more food to fuel, as is now mandated by the U.S. federal government in its Renewable Fuel Standard, will lead to higher food prices, rising hunger among the world’s poor and to social chaos across the globe. By subsidizing the production of ethanol, now to the tune of $6 billion each year, U.S. taxpayers are subsidizing skyrocketing food bills at home and around the world.

The energy bill signed by that free market capitalist George Bush in 2008 mandates that increasing amounts of corn based ethanol must be used in gasoline sold in the U.S. This energy legislation requires a five-fold increase in ethanol use by 2022. Some 15 billion gallons must come from traditional corn-blended ethanol. Nothing like combining PhD models and political corruption to cause worldwide chaos. Ben Bernanke and Charley Grassley have joined forces to bring down the President of 23 years in Tunisia. People tend to get angry when they are starving. Bringing home the bacon for your constituents has consequences. In the U.S. only about 10% of disposable income is spent on food.  By contrast, in India, about 40% of personal disposable income is spent on food. In the Philippines, it’s about 47.5%.  In some sub-Saharan Africa, consumers spend about 50% of the household budget on food. And according to the U.S.D.A., “In some of the poorest countries in the region such as Madagascar, Tanzania, Sierra Leone, and Zambia, this ratio is more than 60%.”

  

The 107 million tons of grain that went to U.S. ethanol distilleries in 2009 was enough to feed 330 million people for one year at average world consumption levels. More than a quarter of the total U.S. grain crop was turned into ethanol to fuel cars last year. With 200 ethanol distilleries in the country set up to transform food into fuel, the amount of grain processed has tripled since 2004. The government subsidies led to a boom in the building of ethanol plants across the heartland. As usual, when government interferes in the free market, the bust in 2009, when fuel prices collapsed, led to the bankruptcy of almost 20% of the ethanol plants in the U.S.

The amount of grain needed to fill the tank of an SUV with ethanol just once can feed one person for an entire year. The average income of the owners of the world’s 940 million automobiles is at least ten times larger than that of the world’s 2 billion hungriest people. In the competition between cars and hungry people for the world’s harvest, the car is destined to win. In March 2008, a report commissioned by the Coalition for Balanced Food and Fuel Policy  estimated that the bio-fuels mandates passed by Congress cost the U.S. economy more than $100 billion from 2006 to 2009. The report declared that “The policy favoring ethanol and other bio-fuels over food uses of grains and other crops acts as a regressive tax on the poor.” A 2008 Organization for Economic Cooperation and Development (O.E.C.D.) issued its report on bio-fuels that concluded: “Further development and expansion of the bio-fuels sector will contribute to higher food prices over the medium term and to food insecurity for the most vulnerable population groups in developing countries.” These forecasts are coming to fruition today.

It Costs What?

The average American has no clue about the true cost of ethanol. They probably don’t even know there is ethanol mixed in their gasoline. The propaganda spread by the ethanol industry and their mouthpieces in Congress obscures the truth and proclaims the clean energy mistruths and the thousands of jobs created in America. The truth is that producing ethanol uses more energy than is created while driving costs higher. The jobs created in Iowa are offset by the jobs lost because users of energy incur higher costs and hire fewer workers as a result. It takes a lot of Saudi oil to make the fertilizers to grow the corn, to run the tractors, to build the silos, to get the corn to a processing plant, and to run the processing plant. Also, ethanol cannot be moved in pipelines, because it degrades. This means using thousands of big diesel sucking polluting trucks to move the ethanol – first as corn from the fields to the processing plants, and then from the processing plants to the coasts.

The current ethanol subsidy is a flat 45 cents per gallon of ethanol usually paid to the an oil company, that blends ethanol with gasoline. Some States add other incentives, all paid by the taxpayer. On top of this waste of taxpayer funds, the free trade capitalists in Congress slap a 54 cent tariff on all imported ethanol. Ronald R. Cooke, author of Oil, Jihad & Destiny, created the chart below to estimate the true cost for a gallon of corn ethanol. Cooke describes a true taxpayer boondoggle:

It costs money to store, transport and blend ethanol with gasoline. Since ethanol absorbs water, and water is corrosive to pipeline components, it must be transported by tanker to the distribution point where it is blended with gasoline for delivery to your gas station. That’s expensive transportation. It costs more to make a gasoline that can be blended with ethanol. Ethanol is lost through vaporization and contamination during this process. Gasoline/ethanol fuel blends that have been contaminated with water degrade the efficiency of combustion. E-85 ethanol is corrosive to the seals and fuel systems of most of our existing engines (including boats, generators, lawn mowers, hand power tools, etc.), and can not be dispensed through existing gas station pumps. And finally, ethanol has about 30 percent less energy per gallon than gasoline. That means the fuel economy of a vehicle running on E-85 will be about 25% less than a comparable vehicle running on gasoline.

Real Cost For A Gallon Of Corn Ethanol
Corn Ethanol Futures Market quote for January 2011 Delivery	$2.46
Add cost of transporting, storing and blending corn ethanol	$0.28
Added cost of making gasoline that can be blended with corn ethanol	$0.09
Add cost of subsidies paid to blender	$0.45
Total Direct Costs per Gallon	$3.28
Added cost from waste	$0.40
Added cost from damage to infrastructure and user’s engine	$0.06
Total Indirect Costs per Gallon	$0.46
Added cost of lost energy	$1.27
Added cost of food (American family of four)	$1.79
Total Social Costs	$3.06
Total Cost of Corn Ethanol @ 85% Blend	$6.80

Multiple studies by independent non-partisan organizations have concluded that mandating and subsidizing ethanol fuel production is a terrible policy for Americans:

• In May 2007, the Center for Agricultural and Rural Development at Iowa State University released a report saying the ethanol mandates have increased the food bill for every American by about $47 per year due to grain price increases for corn, soybeans, wheat, and others. The Iowa State researchers concluded that American consumers face a “total cost of ethanol of about $14 billion.” And that figure does not include the cost of federal subsidies to corn growers or the $0.51 per gallon tax credit to ethanol producers.

• In May 2008, the Congressional Research Service blamed recent increases in global food prices on two factors: increased grain demand for meat production, and the bio-fuels mandates. The agency said that the recent “rapid, ‘permanent’ increase in corn demand has directly sparked substantially higher corn prices to bid available supplies away from other uses – primarily livestock feed. Higher corn prices, in turn, have forced soybean, wheat, and other grain prices higher in a bidding war for available crop land.”

• Mark W. Rosegrant of the International Food Policy Research Institute, testified before the U.S. Senate on bio-fuels and grain prices. Rosegrant said that the ethanol scam has caused the price of corn to increase by 29 percent, rice to increase by 21 percent and wheat by 22 percent. Rosegrant estimated that if the global bio-fuels mandates were eliminated altogether, corn prices would drop by 20 percent, while sugar and wheat prices would drop by 11 percent and 8 percent, respectively, by 2010. Rosegrant said that “If the current bio-fuel expansion continues, calorie availability in developing countries is expected to grow more slowly; and the number of malnourished children is projected to increase.” He continued, saying “It is therefore important to find ways to keep bio-fuels from worsening the food-price crisis. In the short run, removal of ethanol blending mandates and subsidies and ethanol import tariffs, in the United States—together with removal of policies in Europe promoting bio-fuels—would contribute to lower food prices.”

The true cost of the ethanol boondoggle is hidden from the public. The mandates, subsidies and tariffs take place out of plain view.  The reason blenders (and gas stations) will pay the same for ethanol is because they can sell it at the same price as gasoline to consumers. A consumer will pay the same for ten gallons of E10 as for ten gallons of gasoline even though the E10 contains a gallon of ethanol. Consumers pay the same for the gallon of ethanol for three reasons. (1) They don’t know there’s ethanol in their gasoline. (2) There is often ethanol in all the gasoline because of state requirements, so they have no choice. (3) They never know the ethanol has only 67% the energy of gasoline and gets them only 67% as far. The result is that drivers always pay much more for ethanol energy than for gasoline energy, simply because they pay the same amount per gallon. When gasoline prices are $3.00 per gallon, Joe Six-pack pays $4.50 for the same amount of ethanol energy.

You know a politician, government bureaucrat or central banker is lying when they open their mouths. Whenever evaluating a policy or plan put forth by those in control, always seek out who will benefit and who will suffer. Who benefits from corn based ethanol mandates and subsidies? The beneficiaries are huge corporations like Archer Daniels Midland and Monsanto, along with corporate farming operations (80% of all US farm production), and Big Oil. The mandated ethanol levels are set in law. By providing tax subsidies we are bribing oil companies with taxpayer dollars to do something they are legally required to do, resulting in a $6 billion windfall profit to oil companies.  The other beneficiaries are the Senators and Representatives from the farming states who are bankrolled by the corporate ethanol beneficiaries and their constituents who will re-elect them. The environment does not benefit, as many studies have concluded that it requires more fossil fuel energy (oil & coal) to produce a gallon of ethanol than the energy created. The jobs created in the farm belt at artificially profitable ethanol plants are more than offset by job losses due to the added costs in the rest of the economy. When subsidies are removed or oil prices drop, the ethanol plant jobs disappear, resulting in a massive capital mal-investment.

Our supposedly wise PhD and MBA leaders have created a perfect storm. The unintended consequences of government intervention in the markets are causing havoc, food riots, starvation and intense suffering for the poor and middle class. Brazil produces sugar cane ethanol in vast quantities and can export it to the U.S. much cheaper than we can produce corn ethanol. Fuel prices would be lower without tariffs on Brazilian ethanol imports. 

The average cost of food as a percentage of disposable income for an American is 10%. Averages obscure the truth that the cost is probably .0001% for Lloyd Blankfein, Ben Bernanke and Chuck Grassley, while it is 30% for a poor family in Harlem. America’s horribly misguided ethanol policy combined with Ben Bernanke’s Wall Street banker subsidy program are resulting in soaring fuel and food prices across the globe. Poor people around the world suffer greatly from these policies. Below are two assessments of ethanol.    

 “Everything about ethanol is good, good, good.” – Senator Chuck Grassley, Iowa

“This is not just hype — it’s dangerous, delusional bullshit. Ethanol doesn’t burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption — yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World.” – Jeff Goodell

Who do you believe?

The Future of Food Riots

Monday, January 10, 2011 by CommonDreams.org
by Gwynne Dyer

If all the food in the world were shared out evenly, there would be enough to go around. That has been true for centuries now: if food was scarce, the problem was that it wasn't in the right place, but there was no global shortage. However, that will not be true much longer.

The food riots began in Algeria more than a week ago, and they are going to spread. During the last global food shortage, in 2008, there was serious rioting in Mexico, Indonesia, and Egypt. We may expect to see that again this time, only bigger and more widespread.

Most people in these countries live in a cash economy, and a large proportion live in cities. They buy their food, they don't grow it. That makes them very vulnerable, because they have to eat almost as much as people in rich countries do, but their incomes are much lower.

The poor, urban multitudes in these countries (including China and India) spend up to half of their entire income on food, compared to only about ten percent in the rich countries. When food prices soar, these people quickly find that they simply lack the money to go on feeding themselves and their children properly - and food prices now are at an all-time high.

"We are entering a danger territory," said Abdolreza Abbassian, chief economist at the Food and Agriculture Organisation, on 5 January. The price of a basket of cereals, oils, dairy, meat and sugar that reflects global consumption patterns has risen steadily for six months, and has just broken through the previous record, set during the last food panic in June, 2008.

"There is still room for prices to go up much higher," Abbassian added, "if for example the dry conditions in Argentina become a drought, and if we start having problems with winter kill in the northern hemisphere for the wheat crops." After the loss of at least a third of the Russian and Ukrainina grain crop in last summer's heat wave and the devastating floods in Australia and Pakistan, there's no margin for error left .

It was Russia and India banning grain exports in order to keep domestic prices down that set the food prices on the international market soaring. Most countries cannot insulate themselves from this global price rise, because they depend on imports for a lot of domestic consumption. But that means that a lot of their population cannot buy enough food for their families, so they go hungry. Then they get angry, and the riots start.

Is this food emergency a result of global warming? Maybe, but all these droughts, heat waves and floods could also just be a run of really bad luck. What is nearly certain is that the warming will continue, and that in the future there will be many more weather disasters due to climate change. Food production is going to take a big hit.

Global food prices are already spiking whenever there are a few local crop failures, because the supply barely meets demand even now. As the big emerging economies grow, Chinese and Indian and Indonesian citizens eat more meat, which places a great strain on grain supplies. Moreover, world population is now passing through seven billion, on its way to nine billion by 2050. We will need a lot more food than we used to.

Some short-term fixes are possible. If the US government ended the subsidies for growing maize (corn) for "bio-fuels", it would return about a quarter of US crop land to food production. If people ate a little less meat, if more African land was brought into production, if more food was eaten and less was thrown away, then maybe we could buy ourselves another fifteen or twenty years before demand really outstripped supply.

On the other hand, about a third of all the irrigated land in the world depends on pumping groundwater up from aquifers that are rapidly depleting. When the flow of irrigation water stops, the yield of that highly productive land will drop hugely. Desertification is spreading in many regions, and a large amount of good agricultural land is simply being paved over each year. We have a serious problem here.

Climate change is going to make the situation immeasurably worse. The modest warming that we have experience so far may not be the main cause of the floods, droughts and violent storms that have hurt this year's crops, but the rise in temperature will continue because we cannot find the political will to stop the greenhouse-gas emissions.

The rule of thumb is that we lose about 10 percent of world food production for every rise of one degree C in average global temperature. So the shortages will grow and the price of food will rise inexorably over the years. The riots will return again and again.

In some places the rioting will turn into revolution. In others, the rioters will become refugees and push up against the borders of countries that don't want to let them in. Or maybe we can get the warming under control before it does too much damage. Hold your breath, squeeze your eyes tight shut, and wish for a miracle.

World Food Prices Reach Record High & Enter 'Danger Territory'

(If anything gets us, it will be this--or this in combination with one more thing, like another real estate crash or a crash of the US dollar.--jef)

***

UN food price index rises for sixth month in a row to highest since records began in 1990
by Jill Treanor
Wednesday, January 5, 2011 by The Guardian/UK

Soaring prices of sugar, grain and oilseed drove world food prices to a record in December, surpassing the levels of 2008 when the cost of food sparked riots around the world, and prompting warnings of prices being in "danger territory".

An index compiled monthly by the United Nations surpassed its previous monthly high – June 2008 – in December to reach the highest level since records began in 1990. Published by the Rome-based Food and Agriculture Organisation, the index tracks the prices of a basket of cereals, oilseeds, dairy, meat and sugar, and has risen for six consecutive months.

Abdolreza Abbassian, FAO economist, told the Guardian: "We are entering a danger territory." But he stressed that the situation was not yet as bad as 2008.

Sugar and meat prices are at record levels while cereal prices are back at the levels last seen in 2008 when riots in Haiti killed four people and riots in Cameroon left 40 people dead.

Abbassian warned prices could rise higher still, amid fears of droughts in Argentina and floods in Australia and cold weather killing plants in the northern hemisphere.

"There is still room for prices to go up much higher, if for example the dry conditions in Argentina tend to become a drought, and if we start having problems with winterkill in the northern hemisphere for the wheat crops," Abbassian said.

Prices have been rising steadily but Abbassian said that by now he had been expecting food prices to start to fall because many poorer countries had good harvests last year.

But this has not happened after unpredictable weather caused a poor wheat crop in Russia. Last year European wheat prices doubled, US corn prices rose more than 50% and US soybean prices jumped more than 30%.

The current floods in Australia have the potential to affect prices for commodities such as sugar and cane growers are warning of production problems for up to three years. Wheat supplies are expected to affected – Australia is the fourth largest wheat exporter – and the country is also the largest exporter of coking coal, production of which is also being affected by the floods.

At the same time demand from emerging countries such as China and India was strong.

But, Abbassian played down concern that the rising food prices could cause fresh riots as happened two years ago when the price of cereals was largely the cause of the problem along with a dramatic spike in the price of oil. He noted that another rise in the oil price – currently around $95 a barrel – could exacerbate the problem. While oil is rising in price, and forecasters are suggesting it could hit $100, it is still well below the $145 peak it reached in July 2008 on a wave of buying by international speculators.

The FAO food index hit 215 points last month, up from 206 in November, to break the 213.5 registered in June 2008. It shows a dramatic rise in prices for food in a decade. In 2000 the index stood at 90 and did not break through 100 until 2004.

Economists are on guard for spikes in inflation around the world, which might force up interest rates which in the developed world are at historically low levels as a result of the banking crisis.

Julian Jessop, chief international economist at Capital Economics, said: "The upward pressure on inflation this year from the recent surge in the cost of agricultural commodities will be much greater than that from the pick-up in oil prices".

Jessop said the price of oil was rising largely as result of demand caused by a rebound in global industrial activity. "In contrast, the surge in agricultural food prices is largely a consequence of supply shocks, such as droughts in major wheat producing countries. These have been compounded by speculative pressures."

Agricultural Commodity Prices Exploded w/ Price Of Food Rising Substantially In US And World

This Is Starting To Get Very Real
By Michael Snyder - BLN Contributing Writer


Do you believe that you will always be able to run out to Wal-Mart or to the local supermarket and buy massive amounts of inexpensive food?  If so, you might want to think again.  During 2010, agricultural commodity prices have absolutely exploded.  Nearly every single important agricultural commodity has seen a double digit percentage price increase.  In fact, the S&P GSCI Agriculture Index recently surged to a fresh two year high.  Now food producers and retailers are starting to pass those commodity price increases on to consumers.  Today when I went to the supermarket I was absolutely startled by some of the price increases that I witnessed.  On some of the items that I most commonly purchase, prices were up 20 or 30 percent.  So just what in the world is going on here?  Well, it turns out that there was a lot of bad weather around the world this year, so many harvests were worse than projected.  In addition, the growing population of the world has an increasingly voracious appetite for food.  When supply gets tighter as demand continues to go up that means that prices are going to increase.

On a recent article on our sister site entitled "Rampant Inflation In 2011? The Monetary Base Is Exploding, Commodity Prices Are Skyrocketing And The Fed Wants To Print Lots More Money" a reader named Erica left a comment describing the food prices that she is seeing in her area:

Food inflation is real, and it is here. Just yesterday I compared my receipt from a grocery run to prices I have from the same exact store from September 15, 2009. Bacon? Up 52% to $13.69 from $8.99 for 4 lbs. Butter? Up 73% to $9.99 from $5.79 for 4 lbs. Pure vanilla extract up 14% to $6.79 from $5.95. Chopped dried onions up a mere 2% but minced garlic (wet) was up 32%.

These price increases are not a coincidence.  This is happening all over the United States. Food inflation is here and it is not going away any time soon. In fact, food inflation is hitting consumers hard all over the globe this fall:

*According to the United Nations, international wheat prices have soared 60 to 80 percent since July.

*Since the beginning of 2010, the price of bread has gone up 17 percent and the price of meat has gone up 15 percent in European Union countries.

*The inflation rate in Russia rose to 7 percent in September primarily because of rising food costs.

*Turkey’s inflation rate accelerated to 9.2 percent in September, and authorities there are primarily blaming rising food prices for the increase.

*Food riots have already erupted in the poverty-stricken country of Mozambique and the government there is desperately trying to maintain order.

*Food prices have doubled in Afghanistan and authorities are warning that there could be an outbreak of famine unless the nation quickly receives more humanitarian aid.

So is there hope that things are going to get better in the years ahead?

No, not really.

In fact, global demand for food is only going to increase in the years to come. Global demand for meat and poultry is forecasted to increase 25 percent by 2015. Overall, it is being projected that global demand for food will more than double over the next 50 years.

So where in the world will all of that extra food come from?

That is a very good question.

Meanwhile, rising food prices threaten to send a new wave of inflation sweeping across the globe.
Mark O’Byrne, the executive director of GoldCore in Dublin, was recently quoted in Bloomberg as saying that the Federal Reserve "continues to be worried about low inflation, but the rising prices seen in agricultural commodities such as wheat would suggest that they may be looking in the rear-view mirror and should be more concerned about inflation, especially in the medium and long term."

As mentioned earlier, wheat prices have soared 60 to 80 percent this year, but wheat is not the only agricultural commodity that is going up big time.

In a recent article entitled "An Inflationary Cocktail In The Making", Richard Benson listed many of the other agricultural commodities that have spiked in price in 2010:

*Coffee: 45%

*Barley: 32%

*Oranges: 35%

*Beef: 23%

*Pork: 68%

*Salmon: 30%

*Sugar: 24%

So are American families seeing large increases in pay to keep up with all of this food inflation?

No, actually incomes are going down.

Median household income in the United States fell from $51,726 in 2008 to $50,221 in 2009. In fact, of the 52 largest metro areas in the nation, only the city of San Antonio did not see a decline in median household income in 2009. American families are being squeezed like never before, and the last thing that they need is for the price of food to start moving up substantially.

But it isn't just the price of food that is going up.

Health insurance companies across the United States are announcing that health insurance premiums are going to go up substantially this year because of the new health care law.

American consumers can only be stretched so far. Eventually something has got to give.

In fact, we are already seeing more Americans beginning to fall into poverty than ever before.  Today, one out of every six Americans is now enrolled in at least one anti-poverty program run by the federal government.

Unfortunately, there is every indication that the Federal Reserve wants to make inflation every worse.
It seems like almost every single day now a different official from the Federal Reserve makes public comments about how another round of quantitative easing is going to be necessary in order to stimulate the U.S. economy.

But if the Federal Reserve pumps even more paper money into the financial system isn't that going to put inflationary pressure on the economy?

The price of food is going to continue to go up.

U.S. Food Prices ‘Spiraling Out of Control’

U.S. Food Prices ‘Spiraling Out of Control’
05-06-2010

U.S. food prices jumped by 2.4% in March 2010 in the largest monthly leap in more than 26 years, and the sixth consecutive monthly increase.

The National Inflation Association (NIA) issued an alert to its members April 22 warning that the sharp upswing in U.S. food inflation will soon lead to a situation as severe as that currently plaguing India.

Here are some of the most startling year-over-year price increases in the U.S. markets:

* Fresh and dry vegetables up 56.1%
* Fresh fruits and melons up 28.8%
* Eggs for fresh use up 33.6%
* Beef and veal up 10.7%
* Dairy products up 9.7%

In the alert, the nia reminded its members that it has long predicted food sector inflation, but admitted having “never anticipated that it would spiral so far out of control this quickly.”

The rising prices, alongside pandemic unemployment, have nudged tides of Americans onto the food stamp program. After the 14th consecutive monthly increase, 39.4 million Americans are now enrolled in the program. This figure is up 22.4% from one year ago, and the U.S. government is now paying out more to Americans in entitlement programs than it collects in taxes.

Many pundits are proclaiming that the U.S. recession is over and that inflation threats have been neutralized. But their hasty optimism does not factor in that 58% of February’s year-over-year increase in retail sales was not from improving consumer confidence, but from surging food and gasoline prices. The nia believes that price inflation is also accelerating in many economic sectors besides food and energy, and that any increases in 2010 U.S. retail sales will be the result of inflation.

Partly because the U-6 unemployment rate is on the verge of crossing the 17% mark, many retailers are reluctant to pass rising prices along to consumers. But if they wish to avoid reports of colossal losses to their shareholders, they will soon be forced to do just that.

Before this spike, inflation had not been a driving factor in the current economic downturn, and the Federal Reserve expected inflation to remain low throughout the year. But this unexpected jump in food prices and in other areas could quickly change that, especially when the increases are inevitably passed along to consumers and retail inflation starts to rise.

As shocking as it might be to a nation that has grown accustomed to abundance and convenience, mounting inflation and economic hardship will continue to feed each other, and eventually result in severe food shortages. The seeds of such a crisis have already been sown.