We drive, they starve. The mass diversion of the North American
grain harvest into ethanol plants for fuel is reaching its political
and moral limits.

"The reality is that people are dying already," said Jacques Diouf,
of the UN's Food and Agriculture Organization (FAO). "Naturally
people won't be sitting dying of starvation, they will react," he
said.

The UN says it takes 232kg of corn to fill a 50-litre car tank with
ethanol. That is enough to feed a child for a year. Last week, the
UN predicted "massacres" unless the biofuel policy is halted.

We are all part of this drama whether we fill up with petrol or
ethanol. The substitution effect across global markets makes the two
morally identical.

Mr Diouf says world grain stocks have fallen to a quarter-century
low of 5m tonnes, rations for eight to 12 weeks. America - the
world's food superpower - will divert 18pc of its grain output for
ethanol this year, chiefly to break dependency on oil imports. It
has a 45pc biofuel target for corn by 2015.

Argentina, Canada, and Eastern Europe are joining the race.

The EU has targeted a 5.75pc biofuel share by 2010, though that may
change. Europe's farm ministers are to debate a measure this week
ensuring "absolute priority" for food output.

"The world food situation is very serious: we have seen riots in
Egypt, Cameroon, Haiti and Burkina Faso," said Mr Diouf. "There is a
risk that this unrest will spread in countries where 50pc to 60pc of
income goes to food," he said.

Haiti's government fell over the weekend following rice and bean
riots. Five died.

The global food bill has risen 57pc in the last year. Soaring
freight rates make it worse. The cost of food "on the table" has
jumped by 74pc in poor countries that rely on imports, according to
the FAO.

Roughly 100m people are tipping over the survival line. The import
ratio for grains is: Eritrea (88pc), Sierra Leone (85pc), Niger
(81pc), Liberia (75pc), Botswana (72pc), Haiti (67pc), and
Bangladesh (65pc).

This Malthusian crunch has been building for a long time. We are
adding 73m mouths a year. The global population will grow from 6.5bn
to 9.5bn before peaking near mid-century.

Asia's bourgeoisie is switching to an animal-based diet. If they
follow the Japanese, protein-intake will rise by nine times. It
takes 8.3 grams of corn feed to produce a 1g of beef, or 3.1g for
pork.

China's meat demand has risen to 50kg per capita from 20kg in 1980,
but this has been gradual. The FAO insists that this dietary shift
is "not the cause of the sudden food price spike that began in 2005".

Hedge funds played their part in the violent rise in spot prices
early this year. To that extent they can be held responsible for the
death of African and Asian children. Tougher margin rules on the
commodity exchanges might have stopped the racket. Capitalism must
police itself, or be policed.

Even so, the funds closed their killer "long" trades in early March,
causing a brief 20pc mini-crash in grains. The speculators are now
neutral on the COMEX casino in New York.

What about the California state retirement fund (Calpers), the
Norwegian Petroleum fund, the Dutch pension giants, et al, pushing a
wall of money into the $200bn commodity index funds?

They have undoubtedly bid up the futures contracts, but the FAO says
this has no durable effect on food prices. These index funds never
take delivery of grains. All they do is distort the shape of the
maturities curve years ahead, allowing farmers to lock in eye-
watering prices. That should cause more planting.

Is there any more land? Yes, in Russia, Ukraine, and Kazakhstan,
where acreage planted has fallen 12pc since Soviet days. Existing
grain yields are 2.4 tonnes per hectare in Ukraine, 1.8 in Russia,
and 1.11 in Kazakhstan, com-pared with 6.39 in the US. Investment
would do wonders here. But the structure is chaotic.

Brazil has the world's biggest reserves of "potential arable land"
with 483m hectares (it currently cultivates 67m), and Colombia has
62m - both offering biannual harvests.

The catch is obvious. "The idea that you cut down rainforest to
actually grow biofuels seems profoundly stupid," said Professor John
Beddington, Britain's chief scientific adviser.

Goldman Sachs says the cost of ethanol from corn is $81 a barrel
(oil equivalent), with wheat at $145 and soybeans $232. It is built
on subsidy.

New technology may open the way for the use of non-edible grain
stalks to make ethanol, but for now the only biofuel crop that
genuinely pays its way is sugar cane ($35). Sugar is carbohydrate:
ideal for fuel. Grains contain proteins made of nitrogen: useless
for fuel, but vital for people.

Whatever the arguments, politics is intruding. Food export controls
have been imposed by Russia, China, India, Vietnam, Argentina, and
Serbia. We are disturbingly close to a chain reaction that could
shatter our assumptions about food security.

The Philippines - a country with ample foreign reserves of $36bn
(Britain has $27bn) - last week had to enlist its embassies to hunt
for grain supplies after China withheld shipments. Washington
stepped in, pledging "absolutely" to cover Philippine grain needs. A
new Cold War is taking shape, around energy and food.

The world intelligentsia has been asleep at the wheel. While we rage
over global warming, global hunger has swept in under the radar
screen.

By Ambrose Evans-Pritchard, International Business Editor
Telegraph.co.uk

In a message dated 4/19/2008 1:35:08 A.M. Pacific Daylight Time,
crocev@... writes:


"The world food situation is very serious: we have seen riots in
Egypt, Cameroon, Haiti and Burkina Faso," said Mr Diouf. "There is a
risk that this unrest will spread in countries where 50pc to 60pc of
income goes to food," he said.




_Corn_ (http://www.cbot.com/cbot/pub/page/0,3181,1213,00.html)
08Jul
613'0
4'0

_Soybeans_ (http://www.cbot.com/cbot/pub/page/0,3181,959,00.html)
08Jul
1377'0
10'4

_Soybean Oil_ (http://www.cbot.com/cbot/pub/page/0,3181,1272,00.html)
08Jul
61.74
0.16

_Soybean Meal_ (http://www.cbot.com/cbot/pub/page/0,3181,1341,00.html)
08Jul
351.7
1.7

_SA Soybeans_ (http://www.cbot.com/cbot/pub/page/0,3181,495,00.html)
08May
1241'0
0'0

_Wheat_ (http://www.cbot.com/cbot/pub/page/0,3181,1322,00.html)
08Jul
885'0
43'0

_Oats_ (http://www.cbot.com/cbot/pub/page/0,3181,1386,00.html)
08Jul
389'0
0'4

_Ethanol_ (http://www.cbot.com/cbot/pub/page/0,3181,1754,00.html)
08Jul
2'457
0'022

_Rough Rice_ (http://www.cbot.com/cbot/pub/page/0,3181,1410,00.html)
08Jul
24.070
0.445

These are the numbers from the cbot.com end of Friday, 4-18-08. As you all
know the oil seems to be on a relentless march upwards. While all these food
commodities are at record prices the rice is running ahead of the oil.
August of 07 rice was $11 and that's $11 per hundred pounds. As many must be aware
hundreds of millions maybe billions of people spent 50% of their income last
year on food. Rice has more than doubled in 8 months and must be pushing the
poor over the line to starvation. Once one is down to a diet of rice and
beans for their calories/protein, what's the alternative?
We are really starting to see things pick up speed as the percentage
increase in prices has become staggering. Diesel prices here in Ca are up 30% in
six months. Costco raised their baked chickens 10% last week, still a bargain
though. People starving will cause political unrest, governments changing
hands. A starving populace was one of the key ingredients of the French
Revolution 200 years ago. Ran across the article below while researching what our
current trade deficit is vs GDP 5.1% for 07. Keep in mind that no South
American country made it past 4%. Almost half of our trade deficit is imported
petroleum. And with oil prices soaring our trade deficit may soon hit that
unstainable level. Brek


2007 Trade Deficit Exceeds $700 Billion
Slows Growth and Multiplies Recession Woes
Today, the Commerce Department reported the 2007 deficit on international
trade in goods and services was $711.6 billion. This is down from $758.5 billion
in 2006 but still 5.1 percent of GDP.
Pushed up by rising prices for imported petroleum and a ballooning trade gap
with China, the trade deficit is reducing U.S. GDP by $250 billion and
significantly adding to the pain imposed by the unfolding recession.
To finance the deficit of recent years, Americans have borrowed about $6.5
trillion from foreign sources, including foreign governments, and the debt
service comes to about $2000 for each working American.
The flood of dollars into foreign government hands is bloating sovereign
wealth funds that are now buying significant shares of U.S. banks and other
property, and threaten to compromise the loyalties of U.S. businesses.
The Chinese government alone holds more than $1.6 trillion in U.S. and other
securities, and these could be used to purchase 10 percent of the value of
publicly-owned U.S. companies. Add to that the holdings of Middle East
sovereigns and royal families, the potential purchases of U.S. business by foreign
governments with interests unfriendly to the United States exceeds 20 percent
of all publically-owned U.S. companies.
This should give Americans real pause for concern about Chinese and other
foreign government intentions to diversify their foreign exchange holdings into
U.S. stocks and other real assets.
Anatomy of the Hemorrhaging Current Account
In 2007, the United States had a $104.0 billion surplus on trade in services.
This was hardly enough to offset the massive $815.6 billion deficit on trade
in goods.
The deficit on petroleum products was $293.5 billion, up from $270.9 billion
in 2006; prices for imported petroleum rose 10.8 percent from 2006, while the
volume of imports fell 1.5 percent.
The American appetite for inexpensive imported consumer goods and cars is
huge factor driving the trade deficit higher. The deficit on nonpetroleum goods
was $496.8 billion. The trade deficit with China was $256.3 billion, a new
record, and up from $232.6 billion in 2006.
The deficit on motor vehicle products was $121.5 billion. Ford and GM
continue to push their procurement offshore and cede market share to Japanese and
Korean companies. However, the automotive trade deficit was down 17 percent as
Asian automakers continued to expand production in North America and demand
for autos flagged.
This situation is likely to become worse in the months ahead. Crude oil
prices will be higher in 2008 than last year, and an overvalued dollar against
the yuan and yen continues to keep imported automobiles and consumer goods
cheap. Announced production cutbacks at GM, Ford and Chrysler will result in more
imported motor vehicles and parts. Rising gas prices are driving car buyers
away from Detroit’s gas guzzlers and into the arms of Asian brands.
The dollar remains at least 40 to 50 percent overvalued against the Chinese
yuan and other Asian currencies. Although China revalued the yuan from 8.28 to
8.11 in July 2005, and announced it would adjust the currency to a basket of
currencies, the yuan continues to track the dollar very closely. Currently,
the yuan is trading at 7.19.
To sustain an undervalued currency in 2007, China purchased approximately
$465 U.S. and other foreign securities, creating a 34 percent subsidy on its
exports of goods and services. Other Asian governments align their currency
policies with China to avoid losing competitiveness to Chinese products in
lucrative U.S. and EU markets.
Financing the Deficit
The trade deficit must be financed by capital inflows, either by foreigners
investing in the U.S. economy or loaning Americans money. Some analysts argue
that the trade deficit reflects U.S. economic strength, because foreigners
find many promising investments here. The details of U.S. financing belie this
argument.
Foreign direct investment in U.S. only comes to about 10 percent of U.S.
capital inflows and the remainder of the $712 billion trade deficit must be
largely financed by sales of bonds and other securities. The cumulative value of
this debt now exceeds $6 trillion and will likely pierce $7 trillion in 2008.
The interest payments come to about $2000 for each working American.
Consequences for Economic Growth
High and rising trade deficits tax economic growth. Specifically, each dollar
spent on imports that is not matched by a dollar of exports reduces domestic
demand and employment, and shifts workers into activities where productivity
is lower.
Productivity is at least 50 percent higher in industries that export and
compete with imports, and reducing the trade deficit and moving workers into
these industries would increase GDP.
Were the trade deficit cut in half, GDP would increase by nearly $250
billion, or about $1750 for every working American. Workers’ wages would not be
lagging inflation, and ordinary working Americans would more easily find jobs
paying higher wages and offering decent benefits.
Manufacturers are particularly hard hit by this subsidized competition.
Through recession and recovery, the manufacturing sector has lost 3.3 million
jobs since 2000. Following the pattern of past economic recoveries, the
manufacturing sector should have regained about 2 million of those jobs, especially
given the very strong productivity growth accomplished in durable goods and
throughout manufacturing.
Longer-term, persistent U.S. trade deficits are a substantial drag on growth.
U.S. import-competing and export industries spend three-times the national
average on industrial R&D, and encourage more investments in skills and
education than other sectors of the economy. By shifting employment away from
trade-competing industries, the trade deficit reduces U.S. investments in new
methods and products, and skilled labor.
Cutting the trade deficit in half would boost U.S. GDP growth by one
percentage point a year, and the trade deficits of the last two decades have reduced
U.S. growth by one percentage point a year.
Lost growth is cumulative. Thanks to the record trade deficits accumulated
over the last 20 years, the U.S. economy is about $3 trillion smaller. This
comes to about $20,000 per worker.
Had the Administration and the Congress acted responsibly to reduce the
deficit, American workers would be much better off, tax revenues would be much
larger, and the federal deficit could be eliminated without cutting spending.
The damage grows larger each month, as the Bush administration dallies and
ignores the corrosive consequences of the trade deficit.
Peter Morici is a professor at the University of Maryland School of Business
and former Chief Economist at the U.S. International Trade Commission.
_►More Faculty Opinion
Articles_ (http://www.rhsmith.umd.edu/news/opinion/index.html)





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