Imagine if the U.S. Congress were to mandate subsidies for the dumping of 40% of the U.S. corn crop into the ocean every year. That would certainly boost prices, which would be a boon for corn farmers and a menace to everyone else. Such a program would lead to widespread inflation, more hunger and political instability in poor countries around the world, and slower global economic growth.
This scenario may sound far-fetched, but it captures the essence of current U.S. subsidies for corn-based ethanol — except that in some ways it would be less harmful than the current subsidy scheme.
The price of corn is pivotal in the world food equation, and food markets are on edge because U.S. corn stocks are plummeting. In fact, the U.S. Department of Agriculture recently forecast that corn inventories could dwindle to 5% of annual use before the 2011 harvest is brought in, the smallest fraction since the Great Depression.