Think About It

Are Oil Companies Responsible for the Food Shortages?

Well, who knew.  It seemed like a good idea at the time.  There is a good chance that Congress will have to repeal the ethanol bill that they passed just four months ago.   In an environmental epiphany, Congress passed the Renewable Fuels Standard (RFS) which requires suppliers to produce 36 billion gallons of ethanol by 2022.  Around 45% of the  ethanol would come from corn.  The bill was pushed by Democrats, but it also enjoyed the support of many Republicans, including President Bush.

Shortly after the bill passed, food shortages began to occur.  These shortages, in turn, caused increases in the price of food.

A coalition of grocers, oil companies, and livestock producers opposed the bill.   Environmentalists and farm groups supported the bill.

Many are now saying the food crisis is overblown.  There was a major tortilla shortage in Mexico, but tortillas are made primarily of white corn, not yellow corn which is used in making ethanol.  Brewers blamed corn shortages on the rising beer prices.  Only one problem, rice and barley are the main ingredients of beer, not corn.

A congressional subcommittee plans to hold a hearing next week on the RFS.

All of this brings us to some interesting questions:

If President Bush is in bed with the oil companies, as the liberals allege, then why did he openly support the bill?

Are the oil companies manipulating the price of corn in order to kill ethanol production?

Did Congress act too hastily when they passed the ethanol bill?

Will Congress be forced to repeal it?

Food Shortages or the Beginning of a World Wide Famine?

Are world wide food shortages imminent?  According to many experts, we are entering an era of world wide food shortages brought about by several factors. 

Food prices rose sharply in 2006-2007, and the outlook for 2008 is much worse.  Raw food prices have risen 22% in the past year, which has translated into an overall 6.5% increase in grocery prices during 2007.
Wheat prices rose 92% last year.  The price of corn is up 44% over what it was 15 months ago.  Rice is up nearly 40%.

Russia and India have begun to embargo food for export.  Imported rice is being rationed by many large retailers in the U.S.   Food riots have occurred in several countries.  Starvation is rampant in parts of Africa.  We have been one of the world’s leading exporters of food, but all of this may change.

So, what’s going on?  It appears to be a number of factors coming together at the same time.  We supply about 55% of the world’s supply of corn, but nearly one-third of our corn crop is going into Ethanol production.   This along with other factors has triggered an increase in corn prices.  The demands of the rising middle-class in China and India have driven food prices to higher levels.  Livestock, fed on grain, is also proportionally higher.  Higher fuel prices is adding to the cost of farming and transporting raw food to processing plants and eventually to the stores. 

Add to this the world population explosion.  The world population has doubled in the last 40 years and it is expected to increase by another three billion by 2040. 

The questions are: 
How severe will the shortages become? 
How much of the increases are being driven by commodity speculators?  Will America become the next “Saudi Arabia” of food?
Will the U.S. embargo food? 
Will our position as a leading exporter of food give us the needed leverage with oil producing countries?
Will the world’s population eventually outpace our capacity to produce food?
Will the U.S. drop its Ethanol program?
Are the oil companies conspiring to kill the bio-fuels program?