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OECD countries’ biofuels policies, derived from energy and environmental legislation and activated by high oil prices, were the primary cause of not only the sudden spike in grain and oilseed prices in 2007–2008 but also of the ensuing price volatility. Even though developing countries have a comparative advantage in biofuels production, they were shut out of rich countries’ biofuel markets by trade discriminating biofuels policies. Developing countries would not have been able to take full advantage of the price spike in the short run anyway given the low supply elasticities and the long time required for biofuel production to come online, unlike for corn-ethanol. The controversy over the right price of food is misplaced and policy makers should instead focus on improving biofuels policies, which like their counterpart agricultural policies in previous decades, have damaged the welfare of developing countries.

FOB: Free on board.It is very common to hear commentators arguing that Brazil supports its ethanol production (as in the USA and the EU). For example, Brazil has a 20% import tariff on ethanol. Bra...

Based on forecasts of global population growth, food security will remain an important economic development issue over the next several decades. In addition, real food prices have risen in recent years after decades of decline, bringing the issue of food security even further into the public spotlight. However, there is no global food shortage: the problem is one of moving food, often across borders, from surplus production areas to deficit ones at prices that low-income consumers in developing countries can afford. Trade can be an excellent buffer for domestic fluctuations in food supply. World output of a given food commodity is far less variable than output in individual countries so increased trade integration holds considerable potential to stabilize food prices, boost returns to farmers and reduce the prices faced by consumers. Trade liberalization protects national food markets against domestic shocks by allowing more food to be imported in times of shortage and exported in periods of plenty. Historically, however, most countries have chosen to take the opposite approach by restricting imports of food and discouraging exports to keep domestic markets isolated from international shocks. Food commodity markets, therefore, remain highly distorted despite the wave of liberalization that has swept world trade since the 1980s. In addition to examining the determinants of recent food price spikes, Trade Policy and Food Security explores the impact of food prices on economic welfare, and how the effect of price changes on food security and economic welfare in developing countries can be mitigated through appropriate national policies at the border. It highlights the importance of both the extension and continued application of existing WTO disciplines on trade-distorting agricultural trade policies as a key resolution to the collective action problem witnessed during the recent food price spikes, whereby unilateral border policies—especially export controls—simply exacerbated the initial price increases.

The subsidy component of biofuel policies is complicated because of the forward linkage to oil markets. The subsidy associated with tax exemptions is overestimated because consumers purchase fuel for mileage, but fuel taxes are based on volume. Furthermore, the policies of one country establish the link between biofuel and oil prices, so tax exemptions in other countries subsidize gasoline consumption and do not directly increase biofuel prices. The gap between the intercept of the ethanol supply curve and the oil price means part of the subsidy is benefitting no one. As a result, countries like Brazil do not subsidize ethanol production as much as it would appear.

Considerable effort and money are devoted to developing alternative energy sources, such as wind power, solar power, cellulosic ethanol, and biofuels. This ebook is a collection of research papers on alternative energy sources presented at the Economics of Alternative Energy Sources and Globalization: The Road Ahead Conference that was held in November 2009 in Orlando, Florida. Thirty-three papers were presented by leading experts in the field, with about half being published in the e-book. Several of the papers explored the economics of biofuels produced from corn, sugarcane, and/or forestry materials. Two of the papers addressed the link between biofuel production and U.S. agricultural policy, and how biofuels could reduce U.S. Treasury costs even though biofuels increase food prices. International subsidies promote alternative fuel production (e.g., Brazil). This ebook should be a very useful resource for readers interested in alternative energy research and related economic policy.