U.S. Federal Reserve Chairman Ben Bernanke has said he favors cutting high tariffs on Brazilian ethanol. He thereby joins a growing rank of world leading economists, energy experts, social scientists, international development institutions (like the IMF and the World Bank), economic think tanks (like the OECD), key food and agriculture analysts (like the FAO and the IFPRI) and development organisations, who have all spoken out in favor of international free trade in biofuels. Many of these analysts have said current high food prices are partly the result of protectionism in the biofuels market.Biomass based fuels can be made in a far more efficient, environmentally friendly and cost effective way in countries like Brazil and other nations in the Global South. Countries in the North should import these fuels, which would end pressures on food markets and benefit consumers. But both the EU and the US levy high tariffs on these biofuels, to protect their own inefficient, subsidized producers.Speaking before the Senate Banking Committee, Bernanke said in this context:
As you know, I favor open trade and I think allowing Brazilian ethanol, for example, would reduce costs in the United States.Most of the ethanol made in the United States comes from corn, and domestic production is protected from much more efficient and cost-effective sugar-based Brazilian ethanol by a steep, US$0.54 per gallon tariff. This uncompetitive reliance on corn has distorted global food markets. Bernanke said it was hard to say how much current strong demand for ethanol was boosting food prices.
But it is the case that a significant portion of the corn crop is being diverted to ethanol, which raises corn prices. And there's some knock-on effects. For example, some soybean acreage has been moved to corn production, which probably has some effect on soybean prices. So there is some price effect on foodstuffs coming through the conversion to energy use.Promoting free trade in biofuels combined with a framework that ensures environmental and social sustainability, will unlock a large and efficient biofuel potential that benefits consumers everywhere. According to researchers, such a global 'biopact' between the North and the South may help alleviate poverty in developing countries, where large rural populations can benefit from the new biofuels opportunity (previous post). Some analysts, like the WorldWatch Institute have even concluded that, with good policies, biofuels can help end hunger [entry ends here]