Unintended Consequences

I went to Costco early yesterday to do some food shopping. I was out of eggs, milk, and rice and my supply was a bit low on a few other food items. Thus, I had to make quick trip to this store, of which I am a member, so I can replenish my dwindling supply.

Since rice was high on my list of items, I immediately went to the aisle where they usually have it and the following picture shows the stock they had available on display:


I normally buy only one sack of rice at a time. However, I was a bit saddened, although not surprised, to see the following notice posted above the sacks of rice.

The rice and grain shortage that is being felt in parts of Asia and Africa has finally hit the United States too. Although news reports here are assuring the American public that no shortage currently exists within the United States, the government and the private sector have begun to take steps to manage the current rice and grain supply to prevent hoarding, undue price increases, and artificial shortages from occurring.

The above picture shows the brand and type of rice I buy from that store. The brand is called "Super Lucky Elephant" and Jasmine is the rice variety. The rice was imported from Thailand and comes in sacks that have a net weight of 25 pounds or 11.34 kilograms. For the longest time, this particular sack of rice sold for a little less than $9.00 at this store. However, the last year or so saw its price increase gradually. Yesterday, I bought it at $12.69, a 41% increase from what it was just a couple of years ago.

In and of itself, the increase may not be that much. However, once one adds up all the price increases in other food products such as eggs, milk, meats, fruits, vegetables, and other food items, the cumulative impact on one's food budget can be quite significant.

It would be easy and simplistic to lay all the blame on our oil-producing friends at OPEC (Organization of the Petroleum Exporting Countries) for indeed, the price of oil has skyrocketed throughout the first decade of this new century. From around $25 a barrel in 1999, Oil is now hovering at $119 per barrel, a staggering 376% increase. (Sources: WTRG Economics and Bloomberg.com) The soaring price of oil has indeed contributed significantly to the jump in food prices worldwide.

However, unbeknownst to many, there is also another culprit that is contributing to the increase in food prices. This culprit threatens to make global warming a lot worse and a lot more disastrous for all of us. And it's called Biofuels.

When the US Congress passed legislation to increase the use of biofuels, the intention was to lower the country's dependence on oil imports and to protect the environment. Ethyl alcohol, or Ethanol, a fuel distilled from plant matter was considered to be the answer to the world's uncontrollable thirst for crude oil.

However, the unintended consequences of such legislation are that it is now driving up food prices, it is actually making the global warming problem worse and it is inadvertently aiding the destruction of huge swaths of forests worldwide.

It was not only the US Congress who passed such legislation that mandated the use of biofuels. The same type of legislation was also passed all across Europe. It's created a ripple effect. As a result of such legislated mandates, global demand for ethanol experienced a huge spike which in turn has made the prices of grain and corn shoot up in the world market. In the US alone, it is estimated that biofuel production will increase from 7.5 billion gallons in 2012 to 36 billion gallons in 2022.

Due to such very favorable market conditions, a lot of grain and corn farmers worldwide have reallocated part of their grain and corn harvest to the production of fuel rather than just food. In short, a lot of hungry people the world over are now competing against cars for a very limited corn and grain supply. Instead of fueling us, a large part of such harvests are now being used to fuel our cars.

What is a big eye opener according to a recent Time magazine article("The Clean Energy Myth") is that the amount of grain needed to fill an SUV's gas tank with ethanol was enough to feed a person for an entire year.

Since corn and grain farming have now become highly attractive economically, a number of governments and businesses around the world have resorted to converting huge areas of farmland and forests to the planting of such crops. This is getting to be a problem in Brazil where huge areas of the Amazon forest are now being cut down to make way for farms devoted to address the high demand for ethanol. The same is true in both Indonesia and Malaysia where rain forests are being depleted at a rapid rate. If such activities continue, then the amount of greenhouse gases will continue to rise at an even faster rate.

There are other worries too. If more and more of the world's farmers shift their farming to corn and grain, such move would have the effect of reducing the supply of other agricultural products and thus driving their prices up too. In addition, dedicating large amounts of land to fuel production would certainly rob the world of one of its most important sources of food.

With everything that's happening in the world today, it is clear that this whole push for ethanol should be reevaluated and, if necessary, pushed back or stopped. Time is of the essence here. At this point, we've already heard of food riots in certain parts of Africa and that high food prices have fomented instability in other poor countries.

Some experts have said that what we're experiencing is just the beginning, that things are going to get a lot worse before they get better. But at this point and as a first step towards reversing this growing global problem, we all need to accept the cold hard fact that biofuels aren't really the answer to our global warming problems. They're simply making it worse.