Where has all the wheat gone?

Global inventories of the grain are plunging and prices are surging. Is the biofuel boogeyman to blame?


Andrew Leonard
September 5, 2007 2:05AM (UTC)

From Taiwan to Malta and everywhere in between, the price of baked goodness is going up. International wheat prices are spiking to record heights. Global inventories of wheat are predicted to drop next spring to the lowest levels in 26 years, says the USDA.

Good news if you are a wheat farmer, bad news if you are craving bread, noodles, pastries or biscuits.

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The irresistible tendency for biofuel critics is to plug these new numbers into the familiar food vs. fuel debate. Even if wheat isn't going directly into the ethanol hopper, some U.S. wheat farmers are indirectly contributing to the problem by switching to corn.

But there's more going on here than just biofuel bandwagoning. Two other reasons are cited for the rise in wheat prices: bad weather in key wheat-producing regions and increased demand for wheat-based products in the developing world. As the New York Times noted Tuesday in a story on rising milk prices, the emerging middle classes of China and India have healthy appetites.

On Friday, The Seattle Times published a nicely reported story examining the wheat price spike from the point of view of farmers in Washington. Some are skeptical that the good times will last -- they've been burned by years of low prices after similar jumps in the past. But if you take the long view, their pessimism seems unfounded. If climate change intensifies, extreme weather disruptions will become more common. Meanwhile, the world's population is supposed to grow by another few billion over the next half-century. And as long as oil prices stay high, the economic logic sustaining biofuel production will remain intact. Barring a complete collapse in the global economy accompanied by some form of Malthusian solution to population growth, betting long on grain prices doesn't seem like a far-fetched bet.

Funny thing though, sugarcane-derived ethanol made in Brazil has never been cheaper. For reasons not completely clear, the price of sugar has resisted the global food commodity price party.

On August 27, LanzaFuels, a New Zealand biofuel startup, announced the cancellation of plans to build a corn-based ethanol production facility. The reason: executives saw no hope of effectively competing with low-priced Brazilian ethanol imports.

U.S. ethanol producers, of course, don't have to worry about foreign competition, as they sit coddled behind tariff walls and by fat subsidies. Which is why Brazil has initiated a very interesting formal complaint against the United States with the World Trade Organization, alleging unfair trade practices.

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If such a thing as "free trade" truly existed in the world, Brazil would be able to export its cheap, sugarcane-derived ethanol anywhere it pleased. This could conceivably make it uneconomical for American farmers to devote their acreage to corn and encourage some of them to shift to wheat, potentially easing the upward pressure on prices for these two critical food staples.

Even as I write these words, I can hear environmentalists warning about the devastating consequences that would likely ensue if tropical countries like Brazil tried to satisfy the entire world's appetite for transportation fuels with energy crops. And that won't be easy. For any such free trade in biofuels to be sustainable, market prices would also have to reflect environmental costs. Setting in place a global system that properly values biodiversity, rainforest preservation, and greenhouse gas emissions will be a formidable challenge.

But the way things are playing out now makes it a challenge we can't avoid. After a long hot summer, oil prices are high, food prices are rising, and the weather, as a few thousand Miskito Indians on the border of Honduras and Nicaragua would likely tell you, really really sucks. Something's gotta give.

UPDATE: A reader provides some additional wheat farming enlightenment.

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Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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