Donít Believe Everything You Read.  Fact check on NYTís Guatemala Corn/Ethanol Story

Posted on: January 07, 2013 in Corn, Corn prices, Ethanol

“Don’t believe everything you read.” Never have truer words been spoken. Here is a fact check of the January 6th New York Times article “As Biofuel Demand Grows, So Do Guatemala’s Hunger Pangs” by Elisabeth Rosenthal:

NYT: In the tiny tortillerias of this city, people complain ceaselessly about the high price of corn. Just three years ago, one quetzal — about 15 cents — bought eight tortillas; today it buys only four. And eggs have tripled in price because chickens eat corn feed.

Tortillas in Guatemala are made from white corn, while U.S. ethanol is produced from No. 2 yellow corn. Very little white corn is grown in the U.S., but acres dedicated to white corn have not been reduced since passage of the RFS. These two types of corn have distinctly different global markets, demand drivers, and price pressures. It is entirely disingenuous to suggest stronger demand and tighter supplies of No. 2 yellow corn in the U.S. are significantly influencing local white corn prices in Guatemala.

According to U.N. FAO, food prices in Guatemala increased more slowly than normal in 2012. The Guatemalan consumer food price index increased an average of 0.5% per month in 2012, compared with 0.8% in 2011 and 0.6% in 2010. Average food price inflation was 1.0% per month or higher in 2008, 2004 and 2001 and has averaged 0.7% per month since January 2000.

NYT: Meanwhile, in rural areas, subsistence farmers struggle to find a place to sow their seeds.

Guatemalan farmers are harvesting more corn than in the past. Guatemala harvested 850,000 hectares of corn in 2012, the second-highest level in history, according to USDA. Over the past five years, harvested corn acres have been 32% higher, on average, than in the preceding 10 years.

NYT: Recent laws in the United States and Europe that mandate the increasing use of biofuel in cars have had far-flung ripple effects, economists say, as land once devoted to growing food for humans is now sometimes more profitably used for churning out vehicle fuel.

Corn acreage (presumably for white corn) has increased significantly in Guatemala since 2000, according to USDA.

NYT: With its corn-based diet and proximity to the United States, Central America has long been vulnerable to economic riptides related to the United States’ corn policy. Now that the United States is using 40 percent of its crop to make biofuel, it is not surprising that tortilla prices have doubled in Guatemala, which imports nearly half of its corn.

Guatemala is part of CAFTA (Central American Free Trade Agreement), and many of the participating countries put high tariffs on imported corn. Guatemala’s current tariff rate on corn and other grains is near 10%, which significantly discourages imports. According to the non-profit agricultural organization Semilla Nueva, “…for the most part Guatemala’s corn is from Guatemala.”

NYT: At the same time, Guatemala’s lush land, owned by a handful of families, has proved ideal for producing raw materials for biofuels. Suchitepéquez Province, a major corn-producing region five years ago, is now carpeted with sugar cane and African palm. The field Mr. Alvarado used to rent for his personal corn crop now grows sugar cane for a company that exports bioethanol to Europe.

USDA data shows that while sugarcane area planted increased an average of 3.7% per year from 2007 to 2011, sugarcane area (241,000 Ha) is still far smaller than corn area (850,000 Ha) and there is no statistical evidence that farmers are switching away from planting corn to sugar on a large scale.

NYT: In a country where most families must spend about two thirds of their income on food, “the average Guatemalan is now hungrier because of biofuel development,” said Katja Winkler, a researcher at Idear, a Guatemalan nonprofit organization that studies rural issues. Roughly 50 percent of the nation’s children are chronically malnourished, the fourth-highest rate in the world, according to the United Nations.

NYT: But many worry that Guatemala’s poor are already suffering from the diversion of food to fuel. “There are pros and cons to biofuel, but not here,” said Misael Gonzáles of C.U.C., a labor union for Guatemala’s farmers. “These people don’t have enough to eat. They need food. They need land. They can’t eat biofuel, and they don’t drive cars.”

USDA data show consumption of white corn in Guatemala has grown in recent years and set a new record in 2012. U.N. FAO data shows “maize food supply” grew 20% between 2000 and 2009 (the latest data available). Per capita maize consumption increased 3% from 2004 to 2009, according to the same data.

NYT: In 2011, corn prices would have been 17 percent lower if the United States did not subsidize and give incentives for biofuel production with its renewable fuel policies, according to an analysis by Bruce A. Babcock, an agricultural economist at Iowa State University. The World Bank has suggested that biofuel mandates in the developed world should be adjusted when food is short or prices are inordinately high.

Prof. Babcock’s analysis examined the impacts of U.S. biofuel policies on No. 2 yellow corn—the type used for ethanol production—not white corn used for tortillas. In any case, Babcock’s analysis showed that corn prices wouldn’t have been a bit different in 2010 with or without U.S. biofuels policies in place, and only 2-7% lower in 2005-2009. The analysis also shows prices for several basic consumer food items, including eggs, wouldn’t have been any different with or without the RFS in place from 2005 to 2010.

NYT: Once nearly self-sufficient in corn production, Guatemala became more dependent on imports in the 1990s as a surplus of subsidized American corn flowed south. Guatemalan farmers could not compete, and corn production dropped roughly 30 percent per capita from 1995 to 2005, Mr. Wise said.

USDA data shows that the percentage of Guatemalan maize consumption comprised by imports has been relatively steady since 2000. In fact, the share of consumption comprised by imports was smaller in 2012 than in each year from 1999 to 2006.

NYT: Production of sugar cane, long a mainstay Guatemalan crop, has also skyrocketed as biofuels opened new market opportunities. Pantaleon Sugar Holdings, which once exported only food products, now uses 13 percent of its production for fuel. Local sugar prices have doubled.

According to USDA-FAS, Guatemalan sugarcane production has increased just 6.6% between 2007 and 2011.


To see charts illustrating points made in this post, click here.

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