Corn-Based Ethanol Killing the Tortilla

By: Lowell
Published On: 1/27/2007 9:46:07 AM

That's right, growing production of corn-based ethanol in the United States is killing the Mexican tortilla.  According to today's Washington Post:

Mexico is in the grip of the worst tortilla crisis in its modern history. Dramatically rising international corn prices, spurred by demand for the grain-based fuel ethanol, have led to expensive tortillas. That, in turn, has led to lower sales for vendors such as Rosales and angry protests by consumers.

In other words, by producing ethanol from corn, we are literally taking food from the mouths of poor, hungry people. And not just any food, but the staple of peoples' diets.  According to the Post article (quoting Amanda G+ílvez, a nutrition expert at the National Autonomous University of Mexico),  "Poor Mexicans get more than 40 percent of their protein from tortillas."  Not only that, but:

The tortilla-making process, G+ílvez said, releases antioxidants and niacin, which allows them to be absorbed by the body, and the membranes on each corn kernel provide important dietary fiber. As a result of eating tortillas, Mexican children have a very low incidence of rickets, a bone disease caused by calcium deficiency that is common in developing countries.

"It is absolutely crucial for our population to keep eating tortillas," G+ílvez  said.

In other words, tortillas are a crucial part of the diet for poor Mexicans. But now, tortillas in Mexico are becoming unaffordable as corn-based ethanol production in the United States pushes up corn prices around the world.  This is not just wrong, it's also potentially dangerous for Mexico's political stability:

In another place, a rise in the cost of a single food product might not set off a tidal wave of discontent. But Mexico is different.

"When you talk about Mexico, when you talk about culture and societal roots, when you talk about the economy, you talk about the tortilla," said Lorenzo Mej+¡a, president of a tortilla makers trade group. "Everything revolves around the tortilla."

In other words, add potential political instability and worse nutrition for poor Mexicans to the long list of problems with corn-based ethanol:

*Corn-based ethanol takes large amounts of energy to grow, harvest, and process.  Some scientists estimate you actually get LESS energy from the ethanol production process than you put into it. Other, most "optimistic" studies - many of which have been funded by ethanol or corn-growing interests - have indicated a small (10%? maybe 20%), net energy gain from corn-based ethanol.

*Corn-based ethanol requires massive subsidies to produce.  That's right, According to the Wall Street Journal, "it will cost U.S. taxpayers $120 for every barrel of oil saved by making ethanol. Some 'savings.'"

*Corn-based ethanol is bad for the environment.  According to the New York Times:

Because farmers will apply more nitrogen to boost yields (leading to more nitrogen pollution) and, since soy bean prices are down, they will be tempted to return to a +óGé¼+ôcorn-on-corn+óGé¼-¥ rotation. That is, rather than rotate their corn crops with soy beans (a legume that builds nitrogen in he soil), farmers will plant corn year after year, requiring still more synthetic nitrogen and doing long-term damage to the land.

*Corn-baeed ethanol uses huge volumes of precious and irreplaceable water resources. According to a recent article on this subject, in the Plains states, where most U.S. corn is grown, the Ogallala Aquifer - "the largest underground reservoir in the United States and one of the largest on the planet" - is being rapidly depleted:

..[the Ogallala] once held as much water as Lake Huron. It is a treasure that took millennia to accumulate. Remarkably, it could cease to be a water source within another generation.

And for what? To provide water to irrigators who grow surplus, subsidized corn -- the thirstiest of grain crops.

*Corn-based ethanol requires huge amounts of land. As of 2004, the United States consumed 133 billion gallons of gasoline.  To replace all this with ethanol would require 333 million acres of land.  And that's not even taking into account the energy required to produce the ethanol. To put that into perspective, 333 million acres is  almost as much as current total of U.S. cropland (434 million acres), and actually MORE than harvested  cropland in this country.

*Corn-based ethanol is a huge corporate welfare boondoggle for big agribusiness, like Archer Daniels Midland (ADM), which makes at least 40% of the stuff.  According to the environmental magazine Grist:

Even ethanol's most fervent apologists concede that it would have no market without sustained government action. In the 20 years the government has been supporting ethanol, ADM's ethanol line has gone from almost nothing to ADM's second-largest contributor to profit.

*Corn-based ethanol is bad for the American consumer of corn-based products, including meat.  For instance, at this past week's Iowa Pork Congress, "ethanol was the talk of the two-day show" as "higher corn prices have raised the cost of producing pork enough that hog producers probably will lose money this month for the first time in three years."  As the trend towards higher corn costs continues, it will lead to "lower profit margins for livestock producers and higher prices for consumers at the meat counter."

In sum, ethanol is an unmitigated disaster in just about every way - environmental, budgetary, energy balance ramifications, consumer prices, you name it.  And now, you can add potential malnutrition among poor Mexicans who can no long afford tortillas, and potential political instability in Mexico and other poor nations that rely on corn.

So why on earth are we doing this, and why is President Bush pushing it as some sort of "answer" to our energy problems?  Just follow the money.  In 2004, for instance, agribusiness gave $53 million in political contributions, of which $38 million went to Republicans and $15 million to Democrats.  Talk about spreading your money around.  Obviously, ADM and other big agribusiness companies aren't giving this money out of the goodness of their hearts, either.  You think they might just WANT something for their tens of millions of dollars?  Like a few billion dollars per year in subsidies on ethanol, perhaps?  Hmmmm....


Comments



Maybe it is not Ethanol or the market... (Hugo Estrada - 1/27/2007 12:56:16 PM)
Since I was a child in the 1980s living in Mexico, the previous president artificially manipulates the economy to make sure that their party will win the next election. Soon after the election is over, the government lets the market "correct" itself. This is, they stop their semi-secret control of either interests rates, gas prices, food prices or the value of el peso against the dollar. This triggers a recession and or inflation. The idea is that once the new president is in office, voters will not be able to vote the party out of office in another 6 years.

This has happened in 1994, 2000, and now, in 2006.

Also, there is an important NAFTA issue at play. In a year or so, the NAFTA agreement will allow the US to sell its subsidized corn with the local unsubsidized corn producers. This was a key point that the liberal candidate in the last election wanted to re-negotiate with the U.S. because  allowing the US corn to be sold in Mexico is going to further push into poverty the Mexican rural population, the kind where you don't know if you are going to eat the next day or not.

Since people who would benefit the most from buying subsidized American corn are linked to the current government, creating a crisis would be the best way to persuade Mexico to accept a solution that will impoverish them even more.

After all, if a staple is so important for a nation, shouldn't that nation subsidize it? Mexico is an oil producing country, and it is only fair to use some of the oil profits to literally feed its population.



Mexico DOES subsidize it (Lowell - 1/27/2007 1:05:38 PM)
From the Washington Post article.

On Jan. 18, Calderón announced an agreement with business leaders capping tortilla prices at 78 cents per kilogram, or 2.2 pounds, less than half the highest reported prices. The president's move was a throwback to a previous era when Mexico controlled prices -- the government subsidized tortillas until 1999, at which point cheap corn imports were rising under the NAFTA trade agreement. It was also a surprise given his carefully crafted image as an avowed supporter of free trade.

However,

A study this week by the lower house of Mexico's National Congress showed that many tortilla makers are ignoring Calderón's edict. The average price of tortillas is 6 cents higher than the cap, and some shops are charging between 59 cents and $1.04 above the government threshold.

Finally, I will just say that there's no reason to look at conspiracy theories unless the "Occam's Razor" explanation of sharply rising corn prices is disproven.



Price control, not subsidies (Hugo Estrada - 1/28/2007 11:43:25 PM)
Lowell,

If you read your quotes, it clearly says that Mexico subsidized tortillas until 1999. :)

In the past, there where two kinds of subsidies: to producers and to consumers. Consumers got torti-bonos, which were vouchers that could be redeemed for tortillas.

Producers got a guaranteed price; this is, no matter what the market was like, the then government run grain distribution system would pay a certain amount of money. This means, you still had to get a harvest before you got help from the government. And if things went wrong and you lost the harvest; too bad.

Mexico has never had, to my knowledge, a formal subsidy program as the US has, and they never have been as generous as the American subsidies are.

And my description of the destruction of the internal producers is no political fiction. This is what happened with cattle ranchers in Mexico in the 1980s. The market was opened to American beef, and the internal market was destroyed. Who benefitted then? People connected with the government :) The same happened with milk producers, where the brother of Salinas de Gortari made a nice profit from getting milk from the Ukraine to sell to the subsidized milk program.

Also Lowell, I am not proposing any conspiracy theory :) A conspiracy theory would need some kind of secrecy. There isn't one here. Calderon's desire to avoid renegotiating that NAFTA point is well known.

I would say that what would really disprove that this isn't a PR campaign is to see if Calderon's solution  to this crisis is to buy American corn or not. If it is, then it will be clear that it was a publicity campaign since that grain should have been sold to Ethanol plants where there is a better price, not to Mexico. :)

And believe me, I rather be wrong about this; I have a lot of family down there. :)