WASHINGTONThe historical significance of corn in the Americas is comparable to that of rice in China or wheat in the Middle East. Corn is more than a staple, it is part of the regions DNAwhich explains the hysteria in many Latin American countries over rising prices.
In just four years, leaders and organizations that style themselves as progressive have gone from denouncing the precipitous fall in the price of corn to denouncing its sharp climbwith many of the same arguments! Hardly a week goes by in which Cubas Fidel Castro or Venezuelas Hugo Chavez is not accusing rich imperialists of deliberately pumping up the price of corn in order to impoverish Latin Americans. But in 2003, when corn prices were dropping dramatically, Phil Twyford of Oxfam, a left-oriented humanitarian organization, pontificated, The Mexican corn crisis is another example of world trade rules that are rigged to help the rich and powerful, while destroying the livelihoods of millions of poor people.
The rise in corn prices since 2006 has much to do with the synthetic fuel ethanol, which is made from a corn base or from sugar cane and is heavily subsidized by the U.S. and Europe. But there are other elements in play. Protectionism, such as Guatemalas 20 percent tariff on corn imports, is one other reason why Latin Americans find it harder to buy tortillas. In Mexico, indirect price controls have caused shortages of white corn.
Unquestionably, the ethanol craze will continue to have an impact on Latin Americas children of corn. The push for clean energy in the developed world has turned the publics attention to biofuels, signaling to politicians and investors, including conservatives, that ethanol and other such products are the fuels of the future. If anyone is to blame for the doubling of the price of corn that took place in 2006, it is green activistsmany of whom admire those Latin American leaders who are now denouncing the imperialist conspiracy against tortillas.
Latin America is discovering a contradiction between promoting alternative energy and keeping food cheap. Some countries such as Brazil have a vested interest in producing ethanol because they grow lots of sugar cane. Mexicans for their part have a vested interest in keeping things as they used to be because they eat tortillas and their country is a major oil producer. And there are those, such as the Central American nations, that have contradictory intereststhey would like to replace carbon fuels with ethanol because they currently depend on crude oil imports, but they want the price of corn to remain low because, as Rigoberta Menchu, the Guatemalan Nobel Prize laureate, is fond of saying, corn is part of our dignity.
A note of caution: The world has a long way to go before it can replace oil with ethanol. Former Brazilian President Fernando Henrique Cardoso recently told me that ethanol will remain very limited because it is not traded like a fully fledged commodity due to the obstacles that interfere with the development of a real world market for it.
Not to mention that ethanol production involves the use of so much fossil fuel that only one-fifth of each gallon is actually what could be called clean energy. In order to replace oil with ethanol, the amount of corn cultivation would need to grow exponentially in the United Statesan environmental nightmare given how much land would be needed. Even with ethanol in its infancy, it is already clear that it will come at a price. And not just in the price of corn.
We have already seen the environmental impact that the rising demand for ethanol has had in Brazil, where hundreds of thousands of acres of the Amazon-basin rain forest have been cleared in recent years. When we hear environmentalists complain about the loss of the rain forest, we should bear in mind that much of it has to do with a business interest paradoxically generated by green activism in rich countries.
The overall lesson is obvious: Be careful what you wish for (ethanol), because there may be unintended consequences. And when these consequences manifest themselves, it makes more sense to deal with them than to conjure up conspiracy theories or pressure the authorities to intervene (price controls) because, given the competing interests (clean energy versus food), youll likely end up making someone very mad if you do.