Messing with the marketplace

Houston Chronicle Editorial:

Using a global staple such as corn for biofuel rather than food seemed to make sense when there was a surplus of cheap grain and worsening U.S. dependence on foreign oil.

The federal government was quick to boost the new industry with escalating mandates that require 8 billion gallons of renewable fuel be blended with gas sold at the pump this year. As a result, more than 30 percent of the nation's corn harvest goes to fill our tanks instead of our stomachs. Now the world's stomachs are starting to growl.

Increased demand has turned corn into yellow gold, with prices nearly quadrupled per bushel, delighting corn farmers and renewable fuel producers. Unfortunately, the diversion of food to burn in motors is fueling a global crisis and increasing the overhead of Texas beef, poultry and dairy production, all of which use corn to feed livestock. What was intended as a boon for energy independence is costing Texans an estimated $3.6 billion a year in added food costs, while gasoline prices also are at record levels.

The situation is forcing politicians to make a painful choice between competing interest groups. Texas Gov. Rick Perry bit the bullet this week, calling for the Environmental Protection Agency to reduce ethanol requirements by half for at least a year. He was hailed by such groups as the National Chicken Council and the chief executives of giant corporations such as Pilgrim's Pride and Tyson.

His proposal was attacked by the American Farm Bureau and National Corn Growers Association. U.S. Sen. Kay Bailey Hutchison of Texas welcomed Perry's stand, while U.S. Rep. Lloyd Doggett, D-Austin, criticized it for undermining the fight against air pollution.

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Lloyd is a liberal from Austin who probably believes that stuff, but Sen. Kay Bailey Hutchison, another classmate of mine thinks the pollution argument is dead wrong.

The Nobel Prize-winning economist Milton Friedman once said, "One of the great mistakes is to judge policies and programs by their intentions rather than their results."

When Congress passed legislation to greatly expand America's commitment to biofuels, it intended to create energy independence and protect the environment.

But the results have been quite different. America remains equally dependent on foreign sources of energy, and new evidence suggests that ethanol is causing great harm to the environment.

In recent weeks, the correlation between government biofuel mandates and rapidly rising food prices has become undeniable. At a time when the U.S. economy is facing recession, Congress needs to reform its "food-to-fuel" policies and look at alternatives to strengthen energy security.

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We are already seeing the ill effects of this measure. Last year, 25% of America's corn crop was diverted to produce ethanol. In 2008, that number will grow to 30%-35%, and it will soar even higher in the years to come.

Furthermore, the trend of farmers supplanting other grains with corn is decreasing the supply of numerous agricultural products. When the supply of those products goes down, the price inevitably goes up.

Subsequently, the cost of feeding farm and ranch animals increases and the cost is passed to consumers of beef, poultry and pork products.

Since February 2006, the price of corn, wheat and soybeans has increased by more than 240%. Rising food prices are hitting the pockets of lower-income Americans and people who live on fixed incomes.

While the blame for higher costs shouldn't rest exclusively with biofuels — drought and rising oil costs are contributing factors — the expansion of biofuels has been a major source of the problem.

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Texas politicians seem to get the significance first. Hopefully others will follow. If not we will be in for high prices for nearly everything.