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Ethanol a scapegoat for trade policy failures
April 4, 2011 - Mike Maneval
In the past couple weeks, government aid to the development of ethanol as a fuel has taken a beating in many quarters. David Frum, former speechwriter and adviser to President George W. Bush, labels it a "wasteful, foolish and destructive public policy" in advocating the replacement of Iowa as the first contest in presidential primaries in a piece at his website, FrumForum.com. U.S. Sen. Tom Coburn, R-Okla., is pressing to cut a tax credit for ethanol blending, slamming the credit as "wasteful spending" that "increase the burden of government," the New York Times reports.
One of the frequently repeated criticisms of policies supporting ethanol development is that the use of corn in ethanol is driving up prices for corn as feed and for human consumption - a criticism both Frum and Coburn use in attacking the policy. Washington Examiner columnist Timothy Carney adds, "ethanol was even blamed for tortilla riots in Mexico."
But what these critics rarely - if ever - address is the role trade policy and the myth of "free trade" have played in driving up corn prices. In 1991, 1992, and 1993, corn exports from the U.S. to Mexico accounted for less than 2 million metric tons. By 2003, according the the U.S. Department of Agriculture's Economic Research Service, the figure had climbed to just shy of 8 million metric tons - a near-quadrupling. While Mexico's corn production rose by 25 percent from 1990 to 1994, it then, from 1994 to 2000, fell by 8 percent even as demand continued to increase, according to the office of Mexico's Secretary of Agriculture, Ranching, Rural Development, Fisheries, and Food Supply. From 1994 to 1995 alone, Steve Suppan of the Institute for Agriculture and Trade Policy reported, Mexican corn production decreased by 2.5 million tons - a decrease in itself larger than the volume of corn sold to Mexico by the U.S. in 1993.
What happened in the mid-1990s that explains how Mexico, a sovereign nation, starting becoming more and more dependent on a foreign state for the principal crop the country consumes? NAFTA, which included provisions requiring Mexico to gut public assistance to corn production.
This isn't to say U.S. agricultural subsidies work perfectly ... or even well. As I noted when I first began blogging, the convoluted system for aiding farming is costly and counterproductive. As U.S. Sen. Richard Lugar, R-Ind., noted in sponsoring subsidy reform about three years ago, the government could spend less with a crop insurance program and accomplish more.
But the critics of ethanol aren't just ignoring the negative consequences of trade policy on corn prices - in singling out ethanol they are ignoring much of the waste to which Lugar and the co-sponsor of his legislation, U.S. Sen. Frank Lautenberg, D-N.J., called Americans' attention three years ago.
It must be noted what often serves as a substitute policy for the opponents of ethanol development - speeding up the depletion of America's finite energy sources, such as oil, coal, and more recently natural gas. The important word here is "finite." The faster our nation depletes these resources, the more dependent our nation's future will be on foreign nations for our energy needs ... Much like Mexico's increasing dependence on U.S. farmers for their dietary staple.
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