Biofuels Affect the Price of Food for the Poor

“Having caused wholesale changes in the agricultural systems of many poor countries by focusing on free trade and comparative advantage, rich countries are now ready to abandon the poor whose own agriculture no longer functions to feed them.”

Paul Beingessner
Column #604
January 29, 2007

A few years ago we spent a week or so in Mexico. Our fellow tourists at the hotel were far less interesting than the Mexican people who worked in the hotels, restaurants and shops, so I spent as much time as I could trying to learn their stories. Like Canada, Mexico is a land of contrasts in wealth. The upper and middle class people live a life not much different from ours, but half the population lives on less than four dollars a day. Their diet is largely tortillas and beans.

The corn flour tortilla is a staple food in Mexico, like rice in Japan or Big Macs in Regina. Historically, tortillas were made in small shops by family-based businesses. A taxi driver I talked with told me his dilemma with tortillas. While he likely made more than four dollars a day, he found his food budget stretched thin by month-end. He confessed that he had taken to buying his tortillas at the large Sam’s Club on the outskirts of his city. (Sam’s Club is a big box chain owned by the Walmart oligarchy.)

He didn’t feel very good about this, because he would rather have bought from the small shops, but a few pesos meant a lot to his family. He also told me that the tortillas at Sam’s were imported from the U.S.

It was quite an irony, because one of his brothers was working illegally in the U.S. as there were few decent jobs in Mexico. It seemed like quite a vicious circle. He bought tortillas made in the U.S., which put Mexican workers out of business, so they move to the U.S. and end up making tortillas to export to Mexico to put more Mexicans out of work.

You have to wonder why tortillas made in the U.S. would be cheaper than those made at home. The answer is found, simply, in the huge subsidies the American government has poured into its farm sector for several decades. The great surplus of corn that has resulted makes for some very cheap food items.

As well as manufactured corn products, the U.S. poured a torrent of corn into Mexico following signing of the NAFTA. The flood of cheap, subsidized corn cut the price in Mexico in half and forced 1.3 million small farmers off the land. Most sold out to larger, more corporate farms that could hope to compete by mechanization.

For American farmers, and more importantly for the merchants selling their grain, NAFTA was about market access. But devastating the farm economy of Mexico wasn’t enough to fix the troubles in American agriculture. Corn production continues to escalate as farmers struggle to make up for higher input costs. The latest salvation to surface for farmers around the world is the biofuels boom. With the prospect of supply finally declining, the price of corn is climbing dramatically.

So it’s no surprise then, that the price of tortillas is also on the rise in Mexico. It has risen fast enough to cause hardship for poor families and political grief for Mexico’s free trading new president, Felipe Calderon. Calderon has been jeered at and booed around the country. The Mexican leader tried to counter the rise in prices by encouraging even more imports from the U.S. Last week, however, he brought in more dramatic measures, imposing price controls on the giant tortilla manufacturing companies that control the industry.

The biggest victims in it all have been the poor, whose meager incomes don’t stretch far enough to cover today’s prices, stabilized or not.

Mexico is perhaps the first sign of things to come. You can hardly blame farmers around the world for welcoming biofuels as a means to improve crop prices, but too much of the world’s food system now centers on cheap imports of raw product from countries like Canada and the U.S. A dramatic increase in these prices, or a lessening of the plentiful supply will play havoc with the lives of poor people around the world. Having caused wholesale changes in the agricultural systems of many poor countries by focusing on free trade and comparative advantage, rich countries are now ready to abandon the poor whose own agriculture no longer functions to feed them.

The world’s grain traders, the ones free trade conferred the greatest benefits on, simply move on by becoming the owners of the new biofuels facilities.

(c) Paul Beingessner