Biofuels and the Law of Unintended Consequences

This is a news story but let me lead you on a journey. The journey starts from the USA where the cost of energy is way too low. So when the cost of gas went through the roof, instead of trying to improve the fuel efficiency of the vehicles, the idiot president decided to go for bio fuels. Improving the fuel efficiency also would have been a spectacularly stupid measure just to save the bacon of the big 3 American car manufacturers. The tragic part is that it won't help, their goose is cooked, their products suck, are too expensive and the spectacular mismanagement of the universal health provision and pension funds will sink them,

Now the idea for bio-fuels is simple - convert basic food grains such as corn and rapeseed into fuel like what Brazil has been doing with sugarcane for a long time. Ok, so that's a good idea and to make sure that sufficient quantities are available and distributed, they decide to subsidise it a bit more.

So what happens? People rush to grow more corn and rapeseed and then less of the other food grains. Another issue, the cost of feeding cattle with grain goes up as well. Add in the impact of global warming, floods, drought, water shortage, lack of agricultural credit, bad infrastructure, etc., and one isn't surprised that the cost of wheat has jumped 60% since January.

Now let me take you down a different street. The amount of money which we spend on food is relatively static. The ratio between wealth and food consumption/cost is not direct. In other words, you might become richer but you won't spend the same increased proportional amount.

This is because there is a limit to what you can eat and drink. you could increase the quality, you can go outside to eat, you can improve the quality of wine, but this flattens out after some time. Unfortunately, this works on the flip side as well. You can get poorer but you will still need a certain amount to eat, any less and you head into malnutrition and starvation.

So while rich countries such as USA can subsidize their bio-fuel efforts, while the price rises in England for wheat and milk will rarely impact us as proportionately, the cost increase is tiny, for the great majority of the world's population who live below the poverty line and in the developing countries will get hit very badly.

What about poor people in the USA/UK/Europe? Well, are they really poor? The majority of "poor" people in the West have their own homes, have their own cars, washing machines, televisions, microwave and have good meals, in fact, their problem is excess calories and fat. The poor people in the emerging countries do not have any assets, and rarely have sufficient meals on a daily basis.

Simplistically speaking, if the price of a loaf of bread made out of wheat goes up from 1$ to 1.6$, and you purchase 1 loaf per day, and you earn say 10 $ per day, the % increase is relatively small compared to somebody in Zimbabwe who earns 1$ per day. Mind you, the Zimbabwean guy will be considered rich and very lucky that he can get a loaf of bread.

Which brings me to the news item. A senior UN official Jacques Diouf, Director General of the UN's Food and Agriculture Organization has warned that the rise in the prices of milk, wheat, corn, etc. will lead to social unrest.

Let this be a warning, don't muck around with food, if you cannot purchase an iPhone for your daughter for Christmas, you can go buy a SonyEricsson or a Motorola or swear at Apple and purchase an iPhone on eBay.

When you don't have sufficient quantities of food and your daughter is lying there with a distended stomach, you riot and revolt. Governments have toppled, revolutions have broken out and murder mayhem have happened.

The market is badly out of kilter and the international food stocks are dangerously low. Given the ever present problem of food aid, cost of food etc. etc., it is high time that the United Nations create food banks and maintain controlled prices or food aid for the poor. But not till this current US administration is in power.

All this to be taken with a grain of piquant salt!