Sunday, April 13, 2008

Rising World Food Prices

Interesting (and very plausible) explanations in two posts at the Becker-Posner blog.
Rather, the boom in petroleum prices and subsidies to ethanol and other biofuels are the most important forces explaining the recent increase in food prices. Both the sharp run up in oil prices, and the continuing subsides to ethanol production in the United States, and to a lesser extent Europe, induced an increasing diversion of corn from feed and human consumption to the production of biofuels. The main goal of the diversion has been to produce more ethanol as a substitute for gasoline. During the past year, one quarter of American corn production, and 11 percent of global production, was devoted to biofuels, and the US contributes a lot to the world corn market. The growth in demand for biofuels explains why acreage was shifted from other grains to corn-the acreage devoted to corn in the United States increased by over twenty percent in 2007-8, while that devoted to soybean production declined by more than fifteen percent. The reallocation of production away from other grains explains the rapid price increases for wheat, soybeans, and rice as well as for corn.
More later on in the article about how price-interventions by poor governments don't really work: they benefit the urban population, at the expense of the (generally poorer) rural populations.

And over at Cafe Hayek, Don Boudreaux's letter to the WSJ in response to fulminations about high CEO salaries: if you want to end "rewarding bad behavior," scale back government jobs. :)

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