Facing public outrage over the soaring price of tortillas, President Felipe Calderón abandoned his free-trade principles on Thursday and forced producers to sign an agreement fixing prices for corn products.
Skyrocketing prices for corn on the world market have pushed up the price of the humble tortilla, the mainstay of the Mexican diet, by nearly a third in the past three weeks, to 35 cents a pound in Mexico City and even higher in other parts of the country.
Half of the country’s 107 million people live on $4 a day or less, and many of them survive largely on tortillas and beans. The price increases have riled the public to such an extent that it has created a political storm that threatens to swamp Mr. Calderón’s fresh presidency.
I would certainly shed no tears over a brief Calderón presidency but this issue is about a far greater threat.
There is a continuing debate here about what caused the price of tortillas to shoot up so quickly. Some economists blame the increased demand for corn from ethanol plants in the United States, and it is true corn prices in the States last week reached their highest point in a decade, the United States Agriculture Department said. At the same time, the cost of white corn has risen about 13 percent here over the past year, Mexican government figures show.
But Mexican lawmakers and other officials have suggested that giant tortilla companies and corn flour distributors — among them Grupo Maseca S.A. and Maíz Industrializado S.A., often known as Minsa — have taken advantage of the situation, hoarding supplies to drive prices up even more.
Both situations are probably true. Although more farmers are planting corn this year, the corn is destined for an ever-growing number ethanol plants under construction.
Inspired by soaring demand for corn to feed the growing ethanol industry, farmers across the United States are planting corn this year instead of soybeans, wheat and cotton.
Even the man who farms our land in Arkansas is planning to grow corn this year for the first time ever. He has traditionally only grown cotton, soybeans, and some rice.
Depending on the reduced levels of cotton, soybeans, and wheat farming, it will be quite interesting to see how this all plays out on the global stage as all eyes turn to corn and ethanol production to satisfy our desire and need for alternative fuels and to reduce our dependency on imported fuels.
I've never believed this particular solution was going to be economically viable, particularly when placed in the context of its impact elsewhere. We may soon realize the trade off is not pleasant.
Some farmers are contemplating planting continuous years of corn, but that can lead to pest problems and increased costs for fertilizer and seed, said Bruce Erickson, a Purdue University agricultural economist. And those fields tend to produce less each year. Most farmers rotate their crops to maintain nutrients in the soil and stop insects and weeds.
"Most scientific research shows a 10 percent drop in yield when you plant corn on corn," Erickson said. In Louisiana, the number of acres devoted to corn likely will double and could triple, said David Bollich, a grain marketing specialist with the Louisiana Farm Bureau.
"Everybody wants to get into corn this year, some who have never planted it before," he said.
[...]
Corn prices are so high, though, that it will cost chicken and pork producers more to feed their animals, and that could end up increasing prices at grocery stores.
Construction of ethanol plants is by no means limited to the United States. Fifteen are slated for construction in the Philippines in sugar-producing regions.
Pandora's Box has been opened and the beast is emerging. You have been warned. It will take years for the companies who are investing heavily in ethanol plants to recoup their investment, farmers are desperate for crops which fetch top dollar, and someone is going to pay in the end.
However, if one unintended side effect of all this is a sharp reduction in the livestock industry due to increased costs of feed or grazing land converted to farming more corn, that just might be beneficial if society can adjust to a less meat-based diet.
Last month, the United Nations published a report on livestock and the environment with a stunning conclusion: "The livestock sector emerges as one of the top two or three most significant contributors to the most serious environmental problems, at every scale from local to global." It turns out that raising animals for food is a primary cause of land degradation, air pollution, water shortage, water pollution, loss of biodiversity, and not least of all, global warming.
Hat tip to Litbrit for emailing me that link and this appropriate comment: "Food for thought; fuel for debate, though there really isn't much left to debate when it comes to what humans have done to the planet."
Another hard lesson looms right on the horizon.
Crossposted at B3
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