Could Third World Be Winner in Biofuels Bubble?

By David L. Brown

We have written much on Star Phoenix Base about the rapidly growing phenomenon of biofuels production, in which a growing proportion of agricultural crops are being turned into ethanol or biodiesel as alternatives to petroleum.

The race to produce biofuels is taking off in America like a Saturn V rocket, with several dozen ethanol plants now under construction and many more on the drawing boards. In just a couple of years it is estimated that 30 percent or more of the American corn crop will go to alcohol production, just as a growing percentage of the soybean crop will be going to biodiesel plants instead of world food markets. This has all the earmarks of a classic economic “bubble,” as I described here on Star Phoenix Base in my article “Madness of Crowds Surrounds Ethanol Bubble,” June 5, 2006.

We have taken a negative tone toward these biofuel efforts, and for a number of sound reasons. Among them are the fact that farm production itself is energy-intensive, with petroleum and natural gas providing the fuel to drive farm equipment and transport crops, and as the feedstock for fertilizer and farm chemicals needed to maintain high yields.

Another reason is that the biofuels craze is certain to cause farmers to put marginal lands under the plow, resulting in increased erosion from wind and water. Even higher quality soils will be degraded by the process of “mining” their nutrients to produce ever-growing quantities of grain to feed the rapidly expanding biofuels industry.

Another factor we have mentioned is that the diversion of crops to biofuels is taking place just as many less fortunate regions of the world are verging on significant food shortages. As we have pointed out, it will not sit well with starving third world populations to see the U.S. and other advanced nations selfishly using precious food to continue to maintain energy-hogging lifestyles.

But everything deserves to be viewed from all sides, and after some thought I have realized that this scenario deserves another look. During recent decades, and particularly since World War II, the world’s major food producers have used the third world as a dumping ground for excess farm production. Of course, this has been largely characterized as charity — food aid for the poor and hungry — giving we smug Westeners a warm and fuzzy feeling while keeping our farmers fat and happy through generous subsidies.

But there is more to it than that, as demonstrated by the recent breakdown of the Doha round of international trade talks primarily over the issue of rich nations refusing to lower subsidies and duties that keep prices of agricultural commodities artificially low. These trade barriers have punished third world indigenous farmers by keeping them out of the world markets. As a result, the very conditions used to justify the food aid programs have been exacerbated by the refusal of advanced nations to permit free and open worldwide trade in agricultural products.

Indigenous farmers — often faced on the one hand with competition from “free” food aid flowing into their local economies, and on the other with prohibitive import duties imposed by first world nations that prevent local third world products from being sold at a profit on the world markets — have found themselves between a rock and a hard place. The result is that the basic farm economies that are the very foundation of any society have been undermined and destroyed in many of the very places that need them the most.

What does this have to do with biofuels? Well, consider that if America and other traditional food exporters are going to divert an ever-growing percentage of their crops to fuel production, the availability of excess produce for food aid programs is going to be seriously curtailed and perhaps disappear entirely in the near future. There will no doubt still be charitable organizations and individuals eager to provide food aid to the poor and hungry, but the excess food just won’t be there since it will be going out of the tailpipes of millions of first world pickup trucks and SUVs.

That could be seen as disastrous for the third world recipients of food aid, and we have characterized it in that way. But now consider the fact that the very process of dumping unwanted first world overproduction into the third world has had debilitating negative effects on native farm economies. Let’s turn this around and look at the other side of the coin.

As food becomes more scarce and food aid dries up, there is the undoubted potential of increased opportunity for small-scale native farmers. Locally produced crops that were once priced so cheap as to be almost worthless, due to competiton from food aid and economic barriers to export, will grow in value as food scarcity sets in and aid programs shut down. Local economies will be forced to turn once again to indigenous sources of foods, and as world commodity prices are sure to rise higher and higher, food will once again reclaim its rightful place as a valuable and necessary product for all economies, a factor that has been undermined by first world market protectionism, subsidies, and dumping under the guise of food aid. Native economies can once again become more independent and self-sufficient than under existing conditions.

Taking this view, perhaps the best thing that could happen for indigenous third world farmers is for the West to continue on its course of expanding and developing its new-found uses for agricultural crops as alternatives to petroleum. The transition might not be pretty, but in the long run it may be all the better for poor farmers around the globe.

Unfortunately, we cannot say the same for we in the advanced nations, which will be forcing higher food costs on our own people while mining our soil and further postponing the development of sustainable, non-polluting energy sources that will be so critical in the long run.

As counter-intuitive as it may seem, perhaps the big winners in the biofuels race that is now beginning to pick up speed in the first world may be the hard-working farmers of the third world who have struggled for so many years against the overbearing power of the rich and who may now have the opportunity to regain their rightful places in the scheme of things as the foundations of sound local economies.

Could the ominous cloud of the biofuels bubble prove to have, if not exactly a silver lining, at least a few bright spots? Let’s hope so, for there is far too much bad news in the world.

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