Ethanol policy divides Latin America

US efforts to promote ethanol have raised food prices in the region.

from the April 20, 2007 edition

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For many analysts, it seemed a retraction of his earlier position that is likely to reduce friction – and ensuing divisions – with Brazil, says Rafael Quiros Corradi, an analyst in Caracas.

But it's more than just a political football. Many in the US share great hope in ethanol's potential. President Bush, during his State of the Union address in January, pushed for more production by 2017 to 35 billion gallons, up from 5 billion gallons last year.

But there is no doubt, says Pat Westhoff, an associate professor of agriculture at the University of Missouri–Columbia, that ethanol production, has contributed to higher food prices. In August the average price paid to US farmers for a bushel of corn was $2.09 – rising to $2.20 in September, $2.54 in October, $2.87 in November, and past $3 in December.

By January, angry Mexicans took to the streets to protest the rising cost of tortillas, the central part of most Mexicans' diet. While many factors contributed to the ballooning Mexican corn industry, US prices are reflected on the international market, Mr. Westhoff says.

Mexico has reacted most strongly to higher food prices, but it could be the beginning of protests across the world. The food vs. fuel debate poses questions about the management and beneficiaries of resources, says Celso Garrido, an economist at the Autonomous Metropolitan University in Mexico.

"Mexico gets great quantity of corn from the US. This will have an impact on the basket of food for the population in Mexico," he says. "It seems that Mexico requires a policy to look at the impact of transferring food to energy."

Food price increases represent far less of an impact on most Americans, since US households, according to United Nations figures, spend 7.3 percent of their consumption expenditure on food, compared to low- and middle-income countries such as Mexico, where the number is 24.5 percent.

At the summit, Chávez drew a distinction between America's emphasis on using food staples to produce ethanol and Brazil's plan to use sugar. "We have always said that the bioethanol project ... that Brazil has had for more than 30 years is very different from the madness that the US president has proposed," he said. "It's completely the opposite," said Chávez. Analysts say producing ethanol from sugar is also more efficient.

Evanan Romero, an international energy consultant in Venezuela, says he doesn't believe that increased ethanol production – whether with corn or sugar – will contribute to drastically higher prices or hunger among the poor. Instead, he sees ethanol as a development opportunity for poor countries that lack substantial natural energy resources.

"Central America will no longer be known as the Banana Republic, but rather the Alcohol Republic," he says, referring to potential production there.

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