On Egypt and Ethanol

McClatchy Newspapers are carrying a story about how rising food prices have contributed to the unrest in Egypt.

The story talks about how the effects of the extreme weather have reduced the world's supply of food stuffs, how the accelerated development in emerging markets has increased worldwide demand, and how the U.S. Federal Reserves' policy of quantitative easing has exported inflation to the rest of the world.

The glaring lacunae in the McClatchy's coverage is how the production of ethanol as a replacement for gasoline has reduced the supply of food that the U.S. exports to other countries. As Larry Kudlow notes in the National Review Online:

To be fair, not all of the food inflation can be blamed on the Fed. A good part of this problem can also be placed at the doorstep of bipartisan U.S. policies to subsidize ethanol.

According to the Wall Street Journal, in 2001, only 7 percent of U.S. corn went to ethanol. By 2010, the ethanol share was 39 percent. So instead of growing wheat, our farmers are growing corn in order to cash in on ethanol subsidies. Egyptians who can't afford to buy bread and have taken to the streets in protest might be very interested to know this.

A story about soaring prices for Rice offers another ripple to the effects of subsidies for ethanol:

U.S. farmers are planting the fewest acres with rice since 1989 just as global demand surpasses production for the first time in four years, driving prices as much as 12 percent higher by December.

Plantings in the U.S., the third-biggest shipper, may drop 25 percent this year because growers can earn more from corn and soybeans, according to the median in a Bloomberg survey of nine analysts and farmers. Rice, the staple food for half the world, declined 4 percent last year, extending a 2.9 percent drop in 2009. The other crops jumped 34 percent or more.