The Cost to Mexico of U.S. Corn Ethanol Expansion
Ethanol added $1.5-$3.2 billion to Mexico’s import bills from 2006-11
Timothy A. Wise
GDAE Working Paper 12-01
Download the working paper
How much have U.S. ethanol policies pushed up corn prices? And how much have these higher prices cost developing countries dependent on imports for their staple foods? According to this Working Paper by Timothy A. Wise, it cost Mexico between $1.5 and $3.2 billion from 2006 to 2011, when U.S. corn ethanol production expanded dramatically and food prices rose to alarming levels.
The Working Paper, “The Cost to Mexico of U.S. Corn Ethanol Expansion,” was released May 16, 2012 in Mexico City on the eve of a key meeting of vice ministers of agriculture from the G-20 countries. They were meeting to set the G-20 agenda on food security in advance of the G-20 summit June 18-19, 2012 in Los Cabos, Mexico.
The Working Paper, which was released in Mexico in conjunction with a policy report from ActionAid, the international aid organization, finds that:
- Ethanol now consumes 40% of U.S. corn production. The production of corn for U.S. ethanol has grown dramatically in the last decade, spurred by U.S. government policies and rising oil prices.
- U.S. ethanol expansion has raised corn prices. Conservative estimates suggest that prices would have been 21% lower in 2010 without the rising demand from U.S. ethanol. Other estimates suggest that the price impact is as high as 27% for the entire 2006-11 period.
- Mexico imports one-third of its corn, and the added cost due to U.S. ethanol was between $1.5 and $3.2 billion from 2006-11. That is between $250 and $500 million per year, ten-to-twenty times the amount the Mexican government spends on MasAgro, a productivity program for Mexico’s small-scale corn farmers.
- This has contributed to rising hunger and food insecurity in Mexico. Corn tortillas are the staple of the Mexican diet, accounting for 40% of calories consumed in the country. Tortilla prices rose 60% over the last six years while the cost of the basic food basket jumped 53%. Meat and dairy prices, pushed up by high feed costs, increased 35%. In 2011, 56% of Mexicans suffered some period of food insecurity, and five million children went hungry.
- The implications are even more dire for other food-import-dependent countries. Countries that grow little of their own staple foods see no benefit from higher prices for any citizens, as they have few farmers gaining from the price increases. For these countries, biofuel-related price increases are simply a growing drain on limited resources and a significant threat to the food security of their citizens.
The study recommended that the Mexican government take a strong stand in the June 2012 G-20 meetings, by demanding that biofuels, commodity speculation, import dependence, and other underlying causes of the food crisis be on the agenda. Wise found in a recent co-authored report, “Resolving the Food Crisis,” that the G-20 was undermining global efforts to address the crisis, ignoring even its own commissioned studies on food security.
As Wise concludes in the new paper, “Such policies are costing Mexico dearly. Mexico should use its position as chair of the G-20 to put biofuels back on the table.”
Read the GDAE Working Paper, “The Cost to Mexico of U.S. Corn Ethanol Expansion”
Read the ActionAid Policy Report: "Biofueling Hunger: How US Corn Ethanol Policy Drives Up Food Prices in Mexico." Also available in Spanish.
If we want food to remain cheap we need to stop putting it in our cars, by Timothy A. Wise, Economics Blog from The Guardian, September 5, 2012
Spotlight G20: Will Mexico Lead Action on Biofuels, Food Crisis?, by Timothy A. Wise, GDAE Globalization Commentary, from Triple Crisis Blog, May 16, 2012.
Read the related study from the New England Complex Systems Institute, “Impact of ethanol conversion and financial speculation on Mexico corn imports”
Read the policy report by Wise and Sophia Murphy, “Resolving the Food Crisis: Assessing Global Policy Reforms Since 2007”
Read more on GDAE’s work on the Global Food Crisis and U.S. Biofuels.
See Food Vs. Fuel
GDAE's Timothy A. Wise and ActionAid's Marie Brill at the report launch in Mexico City on May 16, 2012
Spanish Language Media:
"El etanol en Estados Unidos y su efecto negativo en México" Salvador Medina Ramírez, Comercio Exterior, Sept/Oct 2012
"Imperativo frenar el uso de maíz para etanol: informe de Action Aid" Lourdes Edith Rudiño, La Jornada del campo, June 23, 2012
"Soslaya G-20 el problema de seguridad alimentaria" by Carolina Gómez Mena, Periódico La Jornada, June 15, 2012
"Especulación financiera, volatilidad e impacto de biocombustibles en precios agrícolas temas marginales en G20" by Ernesto Perea, Imagen Agropecuaria, June 14, 2012
"EU duplica precio de maíz que vende a México" by Érika Ramírez, June 7, 2012
"El bastardo que encareció las commodities"by Ernesto Perea, Imagen Agropecuaria, May 18, 2012
“Cuesta a Mexico 500 mdd anuales poltica de biocombustibles en EU: Action Aid” by Karol Garcia, El Economista, May 17, 2012
"Los biocombustibles y su efecto sobre la seguridad alimentaria" by Emilio Godoy, IPS Noticias, May 16, 2012
"Impacta uso de maíz para producir etanol en EU en precio de la tortilla en México", by Ernesto Perea, Imagen Agropecuaria, May 16, 2012
Read more on GDAE’s Globalization and Sustainable Development Program
The Global Development and Environment Institute’s Globalization and Sustainable Development Program examines the economic, social and environmental impacts of economic integration in developing countries, with a particular emphasis on the WTO and NAFTA's lessons for trade and development policy. The goal of the program is to identify policies and international agreements that foster sustainable development.