Wednesday, January 16, 2013

Food for Fuel Schizophrenia

A common mantra in the biofuel debate even by respected people is that using food (like corn, soy, etc.) to make gasoline and diesel is inherently wrong because food should be for eating. Fundamentally, using food for fuel is a shift in the demand for fuel, and raises the price of fuel for everyone else. We agree that this has negative consequences as is well documents by numerous ny times articles. What struck me though about that particular article is that it acknowledges that activists for the past 20 years have been campaigning for the opposite, an end to agriculture subsidies (in the US, Europe and Japan) because such subsidies shift the supply curve out, and lower the price of food, hurting poor farmers (which is still the majority of the developing world. and most of the poorest).

You can't have it both ways. You can't complain at the same time that food prices are too high and that food prices are too low. Honestly, the net effect of both policies on food prices has been shown to be quite small (at least when I did the calculation at the White House though I think its still true), so its all a lot of noise about nothing.

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