The Cost to Developing Countries of U.S. Corn Ethanol Expansion

Abstract

The extended and widespread drought in the U.S. corn belt is straining corn supplies, raising prices to record levels. This is the third price spike in five years in a period that has come to be known as the food crisis. Roughly 40% of U.S. corn is now consumed in the production of ethanol. The United States is by far the world’s largest producer and exporter of corn, so the combination of tight supplies, low inventories, and continued high demand from the ethanol industry has prompted calls for reforms to U.S. biofuels policies. U.S. production and consumption of corn-based ethanol has been encouraged by a range of U.S. government subsidies and incentives, contributing upward pressure on food prices. The National Academy of Sciences estimated that globally biofuels expansion accounted for 20-40% of the price increases seen in 2007-8, when prices of many food crops doubled. Net-food-importing developing countries were particularly hard-hit. In an earlier paper, we estimated that from 2006-2011 U.S. ethanol expansion cost Mexico about $1.5 billion due to ethanol-related corn price increases. Here we apply the same methodology to estimate the global impacts. We estimate the six-year costs to net corn importing countries at $11.6 billion, with developing countries absorbing more than half of those costs. We examine the negative impacts on the poor in net corn exporting countries. We recommend reforms to U.S. biofuels policies.