In this blog I’ll give you some cricketing perspective of my childhood friend, “Lambu, mera bachpun ka dost Bachchan.” No, I am not talking about Amitabh Srivastav who “Bollywooded” himself into Amitabh Bachchan, but about Gulbir Singh Choudhury who transmogrified himself into Gulbir Bachchan.
Like the one-eyed Nawab of Pataudi who never took his eye off the ball (or off Rinku), Gulbir Bachchan never takes his eye off the ball on the cricket field. In fact, I do not recall Gulbir ever being bowled out or L.B.W. (leg before wicket); invariably he would attempt a square cut and be caught at third slip or gully.
And why do I bore you with this perspective? Because in today’s world, keeping one’s “eye on the ball” is extremely important as you read various reports on the biofuels debate, based largely on distorted facts.
One June 2, 2008, Secretary of Agriculture Edward Schafer said in a speech on food security at the U.N. Food and Agricultural Organization in Rome that biofuels contributed 2 to 3 percent of the overall increase in global food prices in the past year. These remarks were made because ethanol and biofuels are being criticized by foreign leaders (and members of Congress) as the main causes of skyrocketing food prices which threaten to spread malnutrition and hunger in the poorest nations.
Fact or fiction? It turns out that the Secretary’s statement contained a spinning googly which batsmen like Gulbir Bachchan would have easily spotted. Ten days later in testimony before the Senate Energy and Natural Resource Committee, Joseph Glauber, the chief economist of the USDA, said that biofuels contributed as much as 10 percent of the overall increase in global food prices.
Mr. Glauber had looked at the overall impact on food prices of corn-based ethanol and soybean-based biodiesel. Mr. Schafer looked at the impact of only corn ethanol and should have used the word “ethanol” instead of “biofuels” in his statement. Not only was this not an errant googly; Schafer used the word “biofuels” nine times in his statement.
The reason this makes a difference is because last year, the price of soybeans, one of America’s largest crops, has soared. Why? Because more of the beans were used for biodiesel and fewer acres of beans were planted to accommodate more acres of corn.
Why are things like this allowed to happen? The 2007 U.N. Intergovernmental Panel on Climate Change report states that because of global warming “by 2020 agricultural production, including access to food, in many African countries is projected to be severely compromised.” America’s first mandatory policy to reduce global warming emissions is its biofuels mandate. This mandate was based on the notion that agriculturally-based alternative fuels were purported to have lower global warming emissions than the petroleum-derived gasoline or diesel fuel they displace [1].
Thanks to the 2007 energy bill signed into law by President Bush, the U.S. is now required to mix 9 billion gallons of such fuels into the gasoline supply in 2008, up from less than 3 billion gallons in 2000. This mandate is mostly met by corn-based ethanol.
Before the mandate, corn was priced at $2 a bushel; today it is well above $5 a bushel. Wheat and soybean prices are also up, partly as a result of fewer acres being planted in favor of corn. Corn-related foods such as corn-fed meat and dairy have also increased in price [1].
The problem with the global warming policy is that it is more harmful than global warming itself! Clearly the policy is not based on sound science. David Pimentel, Professor of Ecology at Cornell University, published a paper in 2005 in which he states:
“In contrast to the USDA, numerous scientific studies have concluded that ethanol production does not provide a net energy balance, that ethanol is not a renewable energy source, is not an economical fuel, and its production and use contribute to air, water, and soil pollution and global warming” [2].
The Agriculture Department’s own longtime chief economist, Keith Collins, who retired in January, warned them that ethanol was the “foot on the accelerator” of corn demand, and that the mandates would build a “tremendous increase in demand that is going to feed into food prices.”
A Purdue University study [3] estimates the annual food cost increase for 2007 as $22 billion, of which $15 billion is related to the demand to use crops as fuel. In the U.S., this amounts to an additional $130 per household in 2007, and considerably higher in 2008 (an increase of 53 percent from 2007 in the first three months of 2008).
The reports from agri-businesses such as Archer Daniels Midland use the 2 to 3 percent figures cited by Schafer and state that the record demand for corn is being met with record supplies and that there is no shortage of corn. What they don’t tell you is that fewer acres of other crops such as soybeans and wheat are planted and that ethanol production using corn grain requires 29% more fossil energy than the ethanol fuel produced from it [2].
Notwithstanding all this data, the word from the National Corn Growers Association is that “lack of infrastructure, access to capital, and other issues are the more likely causes of hunger – not scarcity of food.” Their conclusions are based on measures like GDP (Gross Domestic Product) and PPP (Purchasing Power Parity).
Here’s where Gulbir Bachchan’s “eye on the ball” comes in handy. Big-picture statistics form the basis of almost every discussion about “the economy.” But is there such a thing as “the economy?”
The statistics report a blended average and that number is treated as if it applies to an entire population. There is a Blackberry economy and an iPhone economy that generate revenues of billions of dollars. But this is not the same economy that is seeing rampant foreclosures in the last 8 months. Similarly, the “global economy” may produce some data that one can measure, but it would be wrong to derive conclusions based on those measurements.
The projected increases in crop prices would have the most serious impact in poor countries. Both Thomas Friedman (The World is Flat) and Fareed Zakaria (Post-American World) describe how the middle classes in India and China are “rising” based on GDP and PPP.
But these metrics do not paint the complete picture. There are at least 1 billion people at risk for hunger and malnutrition who live on less than $1 a day. These people cannot be “averaged” out with the incomes of the wealthiest 400 individuals who have a net worth of over $1 trillion. For these poor people, even a small increase in the prices of grains and vegetable oils determines whether they get to eat once a day or once in two days.
This reality is what prompted India’s finance minister, Mr. Chidambaram, to remark, “When millions of people are going hungry, it’s a crime against humanity that food should be diverted to biofuels.”
A couple of months ago I caught up with Gulbir who now lives in Texas. He told me that he had recently become a millionaire. I congratulated him and asked him when he was going to take me out for dinner. In his drawly voice he replied, “Aaray Prabhu – kya hua na – I accidentally went into a room where Bill Gates was giving a talk – at that moment, the statistical average income of everybody in the room exceeded one million dollars. That’s my story, yaar.”
It looks like Gulbir Bachchan still has his eye on the ball.
References
[1] Ben Lieberman, “Ethanol and other Biofuels: A Global Warming Solution worse than the Problem,” The Heritage Foundation, May 2, 2008. http://www.cs.iastate.edu/~prabhu/gmonpolitics/Lieberman.pdf
[2] David Pimentel and Tad Patzek, “Ethanol Production Using Corn, Switchgrass, and Wood; Biodiesel Production Using Soybean and Sunflower,” Natural Resources Research, Vo. 14, No. 1, March 2005. http://www.cs.iastate.edu/~prabhu/gmonpolitics/Pimentel.pdf
[3] Corinne Alexander and Chris Hurt, “Biofuels and their Impact on Food Prices,” Purdue University Tech Report, Sept 2007, http://www.ces.purdue.edu/extmedia/ID/ID-346-W.pdf
