Food vs fuel wars just beginning

As everyone in China knows, food prices have risen sharply over the past year. If it gives any comfort to anyone, China is not the only country. Rising food prices are a worldwide phenomenon.

The story goes back to the days after World War II. The Western industrial nations went about developing their economy at a fast pace. The basis for this development was cheap oil. From 1945 all the way to the present day, cheap oil seemed to be a bonanza with no end in sight.

As a consequence of cheap oil, the society that developed was based on the internal combustion engine - the motor car. Even though some Americans have been aware of oil running out sometime in the future, the country still consumes oil as if the supply will last forever.

In the US, transport is based on the individual automobile rather than public transport like subways, trains. Even freight is carried by large trucks instead of trains.

Petroleum is fundamental to our modern life. From oil we make plastics, fertilizers, medicine and chemicals. We burn oil to produce electricity.

When countries like China and India began to industrialize, the global scene changed because of increasing demand for oil.

In 2005, easily extracted oil from the oilfields peaked. From now on, the flow will be at a reduced rate, eventually running dry. Oil extracted from the more difficult oilfields, requiring more technology and consequently more expense, is expected to peak in four years, according to some experts in the United Kingdom. Since the global demand for oil exceeds supply, oil prices are going to continue rising.

In the US, there is growing awareness that the country should not depend on foreign oil from unstable regions like the Middle East. More importantly investors have realized there is profit to be made by converting corn into ethanol which can be used as motor fuel.

As more and more ethanol production distilleries come on line, 30 percent of the US corn harvest next year will go into ethanol production.

The US is the world's biggest grain producer and exporter. Almost 70 percent of all the grain imported by many nations around the world comes from the US.

As well as providing food for humans, corn is used as feed for livestock - chickens, cows, pigs. So, as the US turns corn into ethanol, the world community experiences a food shortage. The result is higher prices for foods such as meat, milk, eggs and ice cream.

This inflation initially hit countries like China, India, Mexico and the US, containing 40 percent of the world's population. In China, compared with last year, January pork prices were up 20 percent, eggs up 16 percent. Food prices rose 3 to 4 percent just in the month of May compared with the corresponding period last year.

In India, food prices are now 10 percent higher than last year. In the US, the forecast for 2007 is that the price of chicken will rise 10 percent, eggs 21 percent, and milk 14 percent.

It should be noted that if the entire US corn crop were converted into ethanol, it would satisfy only 16 percent of US transport needs. The amount of corn that goes into the gas tank of a large automobile could feed one person for a year.

So there is direct competition between the 800 million people who own automobiles and the world's poorest 2 billion. Basically there is now a link between the food industry and the energy industry.

When the market sees that it is more profitable to produce ethanol than sell the grain for food, the food industry will be in trouble. Since ethanol is used as a fuel, its price will be tied to the price of oil. As oil prices climb because of the impending world shortage of oil, ethanol prices will rise. As a consequence food prices will rise as well.

China also has an ethanol industry. It was basically started by Western investors who sought to profit by China's corn and the relatively cheap labor as the global price of oil climbs. The Chinese government has been quick to recognize the danger of diverting corn into ethanol. It has said that in view of the food shortage, ethanol production has no place in the Chinese economy.

How should governments proceed in what is a free market economy? The chief remedy is to reduce government subsidies to the ethanol industry. This seems difficult in the US Congress because of vested interests such as farmers who grow corn.

We are already seeing urban protests in countries such as Indonesia, Egypt, Algeria, Nigeria and Mexico. In Mexico, 75,000 people have taken to the streets forcing the government to initiate price controls on corn-based tortillas, their staple food.

It does not take a leap of imagination to see that continuing down the path of corn for fuel will lead to worldwide famine affecting billions of people. This will certainly lead to political instability, social unrest and general chaos.

The picture is not complete if we do not mention another major reason for the global rise in food prices. That is the fast growth of the world population.

More people means more mouths to feed. It is obvious that when the growth of population outstrips the capacity of the world to produce food, famine is the inevitable result.

We have to give every incentive to reduce the world's population right now. The world's population presently stands at 6.5 billion. It is projected to grow to 8.2 billion by 2030 and 9 billion in 2050.

How are we going to feed these additional people when there is already hunger in the world?

This is the most urgent problem humanity has yet faced. Unless we solve this problem, all the other problems such as global warming, water shortages, oil running out will become irrelevant.

There are two important questions at issue here. The first is a moral question: Should we deprive many less developed countries of food just so that we in the industrial countries in the West can have our pleasure rides? Second, a much more important question is: Can the world afford the destabilization - economic, political and social - that is sure to follow from a starving populace?

The author is advisor and senior fellow at the American Center for International Policy Studies