Farm subsidies are the ultimate cash crop. Farmers in rich countries get $1 billion per day in government hand-outs. To be fair, that figure rounds up the numbers, counts agribusinesses and small farmers, and defines subsidies broadly to include tariffs, export credits and other supports. But, give a million or two a day, the order of magnitude is right. By that measure, agriculture is far and away the world's the most protected industry.
What do taxpayers get in return for this unparalleled generosity? A deeply distorted global food trade, with subsidies making nonsense of market prices. Farm subsides are the single biggest reason that the current round of World Trade Organization talks have dragged on since November 2001.
There is no better example of this craziness than the subsidies being offered in the U.S. to growers of corn that will be turned into ethanol. It's one of two biofuels--the other is biodiesel--which are being hyped to the skies as an alternative to fossil fuels, mainly oil.
Ethanol mania is one of the primary reasons that the price of corn has doubled over the past 15 months, in turn driving up prices for basic foods from milk to bread. (Skyrocketing demand for feedstock grain to raise meat for India, China and Latin America's burgeoning middle-class is the other major underlying cause.)
This year, 93 million acres of corn were planted in the U.S, the most since 1944 and 20% more than in 2006. Rising prices mean even more cropland is likely to be turned over to corn. The U.S. governments renewable fuels standard, which went into effect on Sept. 1, calls for 7.5 billion gallons of corn ethanol to be blended into gasoline by 2012. Follow-up legislation now wending its way through Congress raises that number to 15 billion gallons by 2022.
Fifteen billion gallons is about 10% of Americas current annual gasoline consumption. An acre of corn yields barely 300 gallons of ethanol. To make that much ethanol a full 40% of American cropland would need to be dedicated to corn, sending food prices through the roof.
Scads of tax dollars are being thrown at agribusinesses to achieve this insanity. Total government support for biofuels in the U.S. was $7 billion accounting for about half the global total. According to projections, Uncle Sam will shell out $13 billion next year and $16 billion a year by 2014. In all, the government is on track to spend a total of $92 billion on ethanol subsidies by 2012.
A new report from the International Institute of Sustainable Development, a pro-free trade group based in Geneva, makes a case that the American taxpayer is paying more in subsidies to produce each and every gallon of corn-based ethanol than it would cost to buy oil that produced the equivalent amount of energy. That's just nuts.
Are Americans at least getting reductions in net emissions of greenhouse gases for their money? Yes, but nothing like those elsewhere. Brazilians use sugarcane to make ethanol and Europeans wheat and sugar beet. Of the four crops, corn has the least impact on emission levels--spewing only 18% less pollution than conventional gasoline.
That is a benefit, but not a compellingly cost-efficient one. The Institute of Sustainable Development reckons that eliminating a ton of carbon dioxide through biofuels could cost anywhere between $150 and $10,000. But even if it costs just $150, that is still far more expensive that many other ways of reducing carbon emissions, such as making vehicles more efficient. The open market values a ton of carbon dioxide emissions at far less that $150. For that price you can buy credits to offset 40 tons of carbon dioxide on the Chicago Climate Exchange.
Yes, there are social reasons, legitimately chosen, that explain why countries subsidize their farmers, ranging from food security to a desire to protect traditional rural ways of life. To their defenders in Japan, no more so than those in America or France, farm subsidies are as much about national identity as economics.
But biofuel subsidies aren't really about the largely mythical Midwestern family farm. In the U.S., 80% of farm subsides go to massive agribusinesses like