Effects of US Ethanol Expansion on Mexico

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U.S. Ethanol Expansion Cost Mexico Billions in Higher Import Prices

GDAE study estimates that ethanol added $1.5-$3.2 billion from 2006-11
How much have U.S. ethanol policies pushed up corn prices? And how much has these higher prices cost developing countries dependent on imports for their staple foods? According to a new Working Paper by Timothy A. Wise, Research and Policy Director at Tufts University’s Global Development and Environment Institute (GDAE), it cost Mexico between $1.5 and $3.2 billion from 2006 and 2011, when U.S. corn ethanol production expanded dramatically and food prices rose to alarming levels.

The Working Paper, “The Cost to Mexico of U.S. Corn Ethanol Expansion,” was released today in Mexico City on the eve of a key meeting of vice ministers of agriculture from the G-20 countries. They meet to set the G-20 agenda on food security in advance of the G-20 summit June 18-19 in Los Cabos, Mexico.

“Mexico is the chair of the G-20,” notes Wise. “The government has the opportunity to take a strong lead in that powerful body to address the underlying causes of the food crisis. Curbing the expansion of biofuels is crucial to that effort. Mexico bans the use of corn for ethanol to protect food security. Our study shows that Mexicans themselves have suffered from less restrictive U.S. biofuels policies.”

The Working Paper, which is being released in Mexico in conjunction with a policy report from the international aid organization, ActionAid, finds that:

Ethanol now consumes 40% of U.S. corn production. The production of corn for U.S. ethanol has grown dramatically in the last decade, spurred by U.S. government policies and rising oil prices. U.S. ethanol expansion has raised corn prices. Conservative estimates suggest that prices would have been 21% lower in 2010 without the rising demand from U.S. ethanol. Other estimates suggest that the price impact is as high as 27% for the entire 2006-11 period.

Mexico imports one-third of its corn, and the added cost due to U.S. ethanol was between $1.5 and $3.2 billion from 2006-11. That is between $250 and $500 million per year, ten-to-twenty times the amount the Mexican government spends on MasAgro, a productivity program for Mexico’s small-scale corn farmers.

This has contributed to rising hunger and food insecurity in Mexico. Corn tortillas are the staple of the Mexican diet, accounting for 40% of calories consumed in the country. Tortilla prices rose 60% over these six years while the cost of the basic food basket jumped 53%. Meat and dairy prices, pushed up by high feed costs, increased 35%. In 2011, 56% of Mexicans suffered some period of food insecurity, and five million children went hungry.

The implications are even more dire for other food import dependent countries. Countries that grow little of their own staple foods see no benefit from higher prices for any citizens, as they have few farmers gaining from the price increases. For these countries, biofuel-related price increases are simply a growing drain on limited resources and a significant threat to the food security of their citizens.

The study recommends that the Mexican government take a strong stand in the upcoming G-20 meetings, by demanding that biofuels, commodity speculation, import dependence, and other underlying causes of the food crisis be on the agenda. Wise found in a recent co-authored report, “Resolving the Food Crisis,” that the G-20 was undermining global efforts to address the crisis, ignoring even its own commissioned studies on food security.

As Wise concludes in the new paper, “Such policies are costing Mexico dearly. Mexico should use its position as chair to put biofuels back on the table.”

Read the GDAE Working Paper, “The Cost to Mexico of U.S. Corn Ethanol Expansion”
Read the ActionAid Policy Report: “Biofueling Hunger: How US Corn Ethanol Policy Drives Up Food Prices in Mexico”
Read Wise’s op-ed from Triple Crisis Blog: Spotlight G20: Will Mexico Lead Action on Biofuels, Food Crisis?
Read the related study from the New England Complex Systems Institute, “Impact of ethanol conversion and financial speculation on Mexico corn imports”
Read the policy report by Wise and Sophia Murphy, “Resolving the Food Crisis: Assessing Global Policy Reforms Since 2007”

Read more on GDAE’s Globalization and Sustainable Development Program

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