Is selling your produce a mistake?

There was a report on tonight’s edition of Newsnight on the growing ethanol industry in the corn belt of the US. The growth of this industry was hailed by profiting farmers, those concerned about energy security and those worried by carbon emissions.

However, the report warned that increased corn production is damaging the environment as millions of tonnes of fertiliser are being washed from the fields into the rivers and affecting the fish in the Gulf of Mexico.

Another concern is that the increased price of corn would drive up the price of food and that people in developing countries might starve. The Council on Hemispheric Affairs warns that increased global corn prices have caused the price of tortillas to increase by 100%. Is food worth less than fuel? Are American companies putting profits before people?

How should the various parties respond to this situation? What are their aims and options?

First consider the ethanol producers and corn farmers in the US and Mexico. They are benefiting from increased sales and higher sales prices. Is it reasonable to expect the farmers to be worried about whether their corn is sold for ethanol or food? Why should the ethanol manufacturers feel guilty about paying the top prices to their suppliers?

Then there is the US government, which currently gives tax breaks to the ethanol manufacturers. The government could reduce these tax breaks, reducing the profits of the industry and hurting the pockets of drivers. If oil prices continue to rise and worries about buying oil from dodgy regimes don’t go away, the increased cost might be absorbed by the consumer, increasing tax revenues to the government whilst pissing everyone else off.

They could also increase the tax breaks to ethanol plants, which would benefit every one in the industry and drivers but this would increase the impact on the environment.

The ethanol plants can’t stop buying their main raw material. The US government could introduce tariffs on Mexican corn. This would increase profits for American farmers but also increase the price at the pump for American drivers and reduce the profits of the ethanol plants. The tariffs would also reduce profits for Mexican corn farmers and Mexico’s income of foreign capital. Would this help the poor people of Mexico by reducing the price of corn and allowing them to eat or would the hampered exports and reduced GDP be worse for them in the medium to long term?

Consider this from the Mexican government’s point of view. They could put a cap exports of corn to try to stop the corn leaving the country. This would only benefit Brazil and other countries which export ethanol from crops as they would be depriving themselves of a source of foreign money. Do governments ever cap exports?

Filipe Calderon, the Mexican president’s response was to cap the price of tortillas. This might avoid profiteering but it won’t stop the corn going over seas. If the price of tortillas is capped, Mexican farmers have even more reason to try to sell their corn to the US. This could lead to a scarcity of corn.

Another response the Mexican president had was to increase the quota of duty free corn products coming from the US. If the people of Mexico cannot afford to buy food, why are there any tariffs on food imports? If Mexico can sell some corn products to America whilst buying others from them; the price difference either way cannot be very great, otherwise the American corn market would buy all the corn and none would be left to sell to the Mexicans.

It seems that barriers to free trade are the problem here and the biggest threat to the availability of food to the people of Mexico is government interference in trade.

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