Bush administration pushes food prices higher

 
Corn looks surprisingly good considering the very dry conditions that prevailed here for most of the summer. This is field corn intended for feeding the dairy herd on the farm where I live when I am in Pennsylvania. Corn is getting expensive and likely will go much higher which will force up prices of meat, poultry and dairy products. Another government program at work.

The Bush Administration has decided to score some brownie points with the environmental wackos by lining the pockets of a handful of corporations which stand to make a pile of money out of the ethanol from corn racket. This policy has been around for a while and has generally been dismissed as pandering to rural voters in the Plains and Midwest states. But the real beneficiaries have been the corporations that broker and process corn. There are also promoters prowling the countryside raising money from small investors with the promise of great riches to be had from owning a piece of one of the many ethanol manufacturing plants being planned and built in rural areas from Pennsylvania to the Dakotas.

Ethanol supporters tout the government's support for the industry which includes heavy off-budget subsidies by the federal government and some of the states. But, as one who neither grows corn nor owns any shares in ethanol or grain companies, how does it look from here?

Higher food prices form just the tip of the iceberg, and the easiest symptom of coming problems to discern at this time. Ethanol is highly inefficient in the engineering sense - comparing the energy required to produce it to the energy it makes available for transport fuels. Ethanol subsides also starve the Federal Highway Trust Fund of funds needed for construction of interstate highways. States which have followed the federal lead with reductions of per gallon fuel excise taxes on ethanol fuels are starving their own highway agencies of desperately needed funds for highway maintenance. Rising demand for corn to produce ethanol will also encourage the cultivation of corn on marginal lands best left idle or in crops less prone to encourage soil erosion.

The Austrian School of economics (and that included yours truly) takes a very dim view of subsidies to favored industries because they divert investment from other, objectively more profitable, alternatives and often require very painful corrections later. In the present case, we see a headlong rush to build new ethanol facilities which are almost certain to fail. For example, one investment newsletter I read recently reported that one northern Plains state already has enough ethanol plants - in being, under construction or in the fundraising and planning stages - whose operation will require more corn every year than the state has ever produced. Similar bottlenecks will develop in other states if the ethanol hysteria continues.