Food Security and Biofuels: Can Policy Flexibility Reduce Food Price Crises for the Poor? Part Two: US Maize Production System Case

Food crises are created by sudden increases in the prices of foodstuffs on which poor populations rely for daily nourishment. Any mechanism with the potential to alleviate suffering caused by spikes in food prices is worthy of consideration. Several studies and agencies have recommended introducing flexibility into policy driven demand for agricultural biofuel feedstocks to address food price crises (e.g., report of the FAO, IFAD, IMF, OECD, UNCTAD, WFP, the World Bank, the WTO, IFPRI, and the UN High Level Task Force, 2011).  These proposals suggest that grain can be diverted from biofuel production to dampen the impact of volatile cereals prices on the poor.  This presentation reviews the evidence for and against temporary lifting of incentives to produce biofuels in response to food price crises. This talk will focus on the experiences and data associated with the largest producer of biofuel in the world, the USA and its corn-ethanol production system.  The behavior of prices for US maize, food baskets (consumer price indices for food), and energy are considered along with other drivers identified to influence food price spikes. Special attention is given to periods of price volatility, including the rapid rise in prices in 2007-2008 and 2010-2011, and the US drought of 2012. Relevant prior research is summarized and recent data are analyzed to examine if and when US biofuel feedstock could be diverted with beneficial results. Diversion proposals sound logical and are widely assumed to be the “right and moral thing to do.”  The evidence identifies many caveats to consider. Otherwise, temporary market interventions to divert feedstocks from biofuels could have significant costs and make matters worse in the long run. Areas of future research are identified and recommendations are offered for development pathways that could simultaneously improve food security and energy security and thereby address the needs of the populations most vulnerable to food price crises.