Redstate

By Charles Bird Posted in Economy — Comments (1) / Email this page » / Leave a comment »

Colombia is a place where the Democrats are stonewalling on free trade, but this one is on George W. Bush. Brazil is another country where we have barriers to trade, specifically the tariff on the importation of ethanol. Roll the tape.

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The Brazilians have sold me, and they could've done it without showing me those healthy females of breeding age, not that I mind. Not only does Brazil have abundant supplies of ethanol, they make it from sugar, not corn. The Economist:

One roadblock in the Bush-Silva ethanol talks is a 54-cent tariff the United States has imposed on every gallon of ethanol imported from Brazil. Bush says it's not up for discussion.

Splendid. Brazilian sugar-based ethanol is far cheaper and more efficient than the American, corn-based stuff. If Mr Bush were serious about ethanol, he'd let Brazil's in more cheaply, preferably tariff-free. This would boost both Brazilian farmers and America's ethanol infrastructure. Once all that expensive stuff starts to appear—pumping stations, distribution networks—American cellulosic ethanol (from switchgrass and whatnot) is a lot more likely to come onto the market and be competitive. Everyone wins but OPEC.

Meantime, the House just passed a farm bill that does nothing about the ethanol mandate, and it increases our subsidies to corporate ag growers (Heritage Foundation analysis here). Bush will veto it, but the House has more than enough votes to override. Thank you, Congressional Republicans. Regarding high food prices, The Economist pointed out the following last December:

Because this change in diet has been slow and incremental, it cannot explain the dramatic price movements of the past year. The second change can: the rampant demand for ethanol as fuel for American cars. In 2000 around 15m tonnes of America's maize crop was turned into ethanol; this year the quantity is likely to be around 85m tonnes. America is easily the world's largest maize exporter—and it now uses more of its maize crop for ethanol than it sells abroad.

Ethanol is the dominant reason for this year's increase in grain prices. It accounts for the rise in the price of maize because the federal government has in practice waded into the market to mop up about one-third of America's corn harvest. A big expansion of the ethanol programme in 2005 explains why maize prices started rising in the first place.

Ethanol accounts for some of the rise in the prices of other crops and foods too. Partly this is because maize is fed to animals, which are now more expensive to rear. Partly it is because America's farmers, eager to take advantage of the biofuels bonanza, went all out to produce maize this year, planting it on land previously devoted to wheat and soyabeans. This year America's maize harvest will be a jaw-dropping 335m tonnes, beating last year's by more than a quarter. The increase has been achieved partly at the expense of other food crops.

Simon Robinson has more on his biofuels blog. Conservatives can disagree (and have) with John McCain on several issues, but he is right on this one, and he gets extra credit for saying it in Ames, Iowa, two months prior to the Iowa primary (or caucus). The ethanol subsidy is wasteful, inflationary and market-distorting, as is the ethanol tariff on Brazil.

As Ed Morrisey noted, this could have been an issue where Republicans could have successfully differentiated themselves from Democrats and their high-spending ways, not to mention being on the right side of the issue. Alas. With bad decisions like this, the GOP is practically asking for a meltdown this November.