Record Food Prices Linked to Biofuels

Reports from the WTO and USDA show that corn supplies are influenced by biofuel subsidies and mandates.

By Kevin Bullis

The biofuels industry is being blamed for record food prices and high price volatility. Earlier this month a report from the World Trade Organization and other international agencies recommended that governments cut support for biofuels to ease that volatility. On the heels of that report, the U.S. Department of Agriculture issued its corn forecast; it suggested that corn supplies will be very tight this year because bad weather has limited planting and because the share of corn going to ethanol is increasing. After the report, corn prices shot to record highs, reaching $8 a bushel. Then on Friday, the Organization for Economic Cooperation and Development released a report predicting that food prices will remain high for the next decade.
Many experts say the unprecedented prices are at least partially driven by government subsidies and mandates that have led to fourfold increases in production of ethanol biofuel and tenfold increases in production of biodiesel between 2000 and 2009 worldwide. In the United States, multiple bills and amendments have been introduced to scale back subsidies as a way of trimming the federal budget, and on Thursday the Senate voted to end tax credits for ethanol that amounted to nearly $6 billion. (The program won't be killed unless the House passes its own law ending it.)
The WTO report cited many reasons for the high prices and volatility, including changes in demand for food, bad weather, low stock, and the recent high cost of oil. Oil prices directly affect the production costs of food by raising the price of tractor fuel and fertilizers. If oil is expensive enough, it can also increase demand for biofuels, which drives up the price of crops such as corn and sugarcane.
The WTO report also cited government biofuel mandates as a significant problem. Not only do these requirements drive up demand for crops such as corn, increasing prices, but they limit the ability of markets to respond to price changes, increasing volatility. "We've lost a lot of our ability for our agricultural system to be buffered from price shocks from weather and other things that affect production," says Jason Hill, a professor of bioproducts and biosystems engineering at the University of Minnesota.
Worldwide, 8 percent of corn produced is used for biofuels. In the United States, according to the new USDA report, 35 percent of corn in the growing season ending in 2010 went to the production of biofuels; this growing season it is predicted to be 37 percent; it is expected to be 38 percent in 2012.
Representatives for the ethanol industry say that the share of corn used for ethanol is typically overstated. After processing in an ethanol plant, one-third of the corn used, by weight, can still be used as feed, decreasing the amount of feed that ethanol displaces, according to the Biotechnology Industry Organization. The Renewable Fuels Association argues that other factors, such as the price of oil, have a far greater impact than ethanol production on the price of food.

Copyright Technology Review 2011.

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Afghanistan facing insolvency within a month, say officials

IMF rejection of proposals over Kabul Bank crisis, $820m bailout debts and suspension of aid leaves country in deepening crisis

Afghanistan is facing a deepening financial crisis after the IMF rejected proposals to resolve the Kabul Bank scandal. Photograph: Shah Marai/AFP/Getty Images

The Afghan government will struggle to pay its bills "within a month" after the International Monetary Fund rejected proposals for resolving the Kabul Bank scandal, western officials have warned.
Although the war-torn country's biggest bank nearly collapsed last September, the government of Hamid Karzai and the international community are still at loggerheads over plans to fund an $820m (£507m) bailout as well as how the disgraced former managers and shareholders who helped themselves to hundreds of millions of dollars should be prosecuted.
As long as the IMF declares the plans to be inadequate, many countries, including Britain, are legally barred from pumping money into a government that is almost completely reliant on foreign cash to pay civil servants' salaries.
It was reported by Reuters that the IMF has now formally rejected the Afghan government's proposals, meaning aid disbursements will remain on hold. The failure to reach a deal by a deadline of last Saturday also meant a $70m payment from the World Bank's Afghan reconstruction trust fund was automatically withheld.
Two senior western officials said the government will face a cash crisis in the coming weeks and could struggle to pay staff bills, although one predicted this would be avoided by cutting other spending priorities.
Last month, Omar Zakhilwal, the country's finance minister, told the Guardian that suspension of aid payments "has already had an effect on us, no doubt about it". He insisted that the Afghan government had done "95% of what was asked of us" by the IMF, including effectively nationalising Kabul Bank, stripping the shareholders of their rights and putting all unrecovered loans into receivership.
But although he claimed the remaining issues "were inconsequential to Kabul Bank" the IMF sees two aspects as vitally important. Firstly, an agreement that Afghan taxes, not foreign aid, will repay the $820m taken out of central bank reserves last year to prop up the bank. Second, they want serious criminal investigations against managers and shareholders, many of whom enjoy high level political support, who illegally borrowed huge sums of interest-free cash from the bank.
Although the finance ministry has drawn up plans to increase its tax-raising efforts in order to pay off the bailout in annual instalments, horrified MPs have already rejected one budget request for $73m and is also likely to reject a supplemental budget due to be presented by Zakhilwal soon.
"The IMF tells me, this is our demand, give me condition by this date the parliament must approve this line in the budget," explained Zakhilwal. "I am a minister, can I chose the parliament timeline? On these issues the international community totally disregards the legal processes of Afghanistan."
Many MPs argue that the money should be found by simply selling off the assets illegally bought by shareholders and managers, including a gas distribution company, an airline and luxury villas in Dubai.
Although a $10m forensic audit by Kroll may help identify many deliberately hidden assets, most western experts doubt more than half of the outstanding $910m will be recovered. So far just $61m has been retrieved.
Zakhilwal also argued that prosecutions could only be handled by the attorney general and warned that the complicated inquiry cannot be rushed.
"The attorney general can arrest people, but after 15 days with not case they have to be acquitted – that would be even more embarrassing for us," Zakhilwal said.
Although the finance minister insisted the attorney general was "absolutely committed" to a thorough investigation, the international community is sceptical, not least after Afghanistan's top law officer threw out a case last year against one of Karzai's key aides who had been wire-tapped soliciting a bribe.
One alternative plan is for a special court of handpicked judges deemed to be reasonably honest and well-versed in finance to hear the case.
Credible prosecutions are vital, not just to appease public anger, but also because many of Kabul Bank's assets are in Dubai. Under United Arab Emirates law it is impossible to seize properties until criminal investigations have begun.
Not only does Afghanistan face a cash crunch, the showdown with the IMF also threatens to derail plans, pushed hard by Hamid Karzai, for a far greater proportion of international aid to be spent through official channels, rather than on projects outside the control of the government.
A key element of the "transition" strategy by which the foreign intervention in Afghanistan will be greatly reduced by the end of 2014, the international community last year agreed that 50% of spending will go through the government by 2012.
But it is now feared that if the Afghan government continues to be considered unworthy of international investment by the IMF the country will have to return to patchwork of bilateral funding agreements.

Greek PM warns against default as Europe meets on aid

ATHENS/LUXEMBOURG (Reuters) – Prime Minister George Papandreou asked Greeks on Sunday to support austerity steps and avoid a "catastrophic" default, as European finance ministers discussed extending tens of billions of euros of aid to Athens.
Addressing the Greek parliament, Papandreou appealed for the nation to accept deeply unpopular tax hikes, spending cuts and privatisation plans which international donors have demanded as a condition for the aid.
"The consequences of a violent bankruptcy or exit from the euro would be immediately catastrophic for households, the banks and the country's credibility," Papandreou said at the start of a confidence debate on his new crisis cabinet.
Greek officials have said the country will face default in mid-July if the European Union and the International Monetary Fund do not hand over a 12 billion euro tranche of emergency loans by then.
Euro zone finance ministers began a two-day meeting in Luxembourg on Sunday evening to decide whether to disburse that tranche, part of a 110 billion euro ($156 billion) bailout of Greece launched in May last year. They will also discuss proposals for a second bailout that could be worth some 120 billion euros and keep Greece funded through 2014.
Spain's economy minister told reporters on the sidelines of the meeting that ministers hoped to reach agreement on Sunday night on disbursement of all of the next loan tranche to Greece.
"We're still discussing... We hope (to have a deal). That's why we are here tonight," Elena Salgado said.
The finance minister of Germany, where political opposition to spending taxpayers' money on bailing out Greece has been rising, was more equivocal.
"We will work today and tomorrow so that we get as far as possible," Wolfgang Schaeuble said. "Greece must fulfill all the necessary preconditions so that it can be paid out on time. Europe will do its part.
OPPOSITION
Facing public protests and dissent in his Socialist party, which has a slim majority in parliament, Papandreou reshuffled his cabinet last week and called a confidence vote for next Tuesday in an effort to push his reforms through the legislature this month.
Political analysts think he is likely to succeed, but public opposition means it is unclear if he can stick to austerity over the long term. Over 10,000 people protested in front of parliament on Sunday, chanting: "We won't pay! We won't pay" and thrusting their open hands forward in a traditional insult.
Opposition leader Antonis Samaras demanded in parliament that Papandreou quit to pave the way for early elections and a renegotiation of the terms of Greece's current bailout.
Greece, with a public debt worth more than 150 percent of its annual economic output and rising, missed debt targets in its initial bailout plan partly because of a deep recession.
In the proposed new bailout scheme, private investors would for the first time share the burden, pledging to maintain their exposure to Greece by voluntarily buying about 30 billion euros of sovereign bonds as their current holdings matured.
But such a debt rollover would be complex and controversial, financially and legally. Key details have not been worked out, and euro zone finance ministers are expected to discuss them in Luxembourg.
Yields on bonds of indebted euro zone states rose sharply last week as markets speculated Greece might fail to obtain more aid. Many investors think that even if it does, its debt problem is so large that a more radical solution is needed, such as imposing deep losses on its creditors.
The head of Pimco, the world's largest bond fund, said in an interview published on Sunday that Europe risked wasting more money for nothing if it kept pumping billions into the weak Greek economy.
"After a year, every indicator has unfortunately worsened, despite the incredible quantity of financial assistance," Mohammed El-Erian told Italy's Corriere della Sera daily.
"All of this has terrible human consequences and it's associated with a transfer of liabilities from private creditors to European taxpayers. Why? Very little is being done to deal with the excess of public debt, and the conditions for higher growth are not being put in place.
"Further on, if this approach is kept up, more money will be wasted to save private creditors and the risk of a disorderly restructuring of the debt will be greater.
EUROPE
There were signs across Europe on Sunday of tensions over austerity measures and economic reforms.
In Madrid, tens of thousands of people marched against the government's handling of an economic slump and the "Euro Pact," which was agreed by euro zone politicians to improve competitiveness across the bloc and has led in Spain to reforms giving companies greater power to hire and fire.
In Dublin, which obtained an 85 billion euro bailout last year, the Sunday Times quoted an unnamed European Central Bank source as criticising Finance Minister Michael Noonan's call to impose losses on senior bond holders in two failed banks.
"It was a good soundbite for the cameras ... Considering the Greek situation, it was the worst possible time for him to make an impression," the source was quoted as saying. The ECB has opposed making those bond holders pay on the grounds that it might destabilise financial markets.
"By the time it comes to paying back the bonds next autumn, Greece may have defaulted. If Greece defaults, Ireland is next," the source said.
In Milan, Prime Minister Silvio Berlusconi said Italy would take the measures it considered right to keep its public finances in order. On Friday, credit rating agency Moody's warned it might cut Italy's rating out of concern over Rome's ability to reduce its heavy public debt burden.
(Writing by Andrew Torchia; Editing by Andrew Heavens)

SNB's Jordan: Worse euro crisis may hit Swiss: report

(Reuters) - Big Swiss banks have very little direct exposure to Greece but Switzerland may be affected if a Greek default destabilizes the whole financial system, the Swiss National Bank's vice chairman told a newspaper on Sunday.
In remarks similar to those he made at the SNB's monetary policy review on Thursday and in the SNB's annual Financial Stability Report, Thomas Jordan said a domino effect brought about by a Greek debt restructuring likely would cause further upwards pressure on the Swiss currency.
Concerns about debts in peripheral euro zone countries have repeatedly pushed the safe-haven Swiss franc to record peaks against the euro this year. Swiss exporters have complained their margins are suffering and the SNB has decided to leave rates ultra-low to keep a lid on the rising currency, running the risk of a bubble in the real estate market.
"So long as only the peripheral countries are affected, the risk is limited," Thomas Jordan told the newspaper Der Sonntag. "But the big Swiss banks necessarily have many investments abroad, in particular in countries with big financial markets. If the whole financial system were affected, that would naturally have severe consequences for Switzerland."
Switzerland had to bail out UBS during the financial crisis after it suffered big writedowns and the government is now pushing tough capital standards for UBS and rival Credit Suisse that exceed the Basel III standards.
In its report, issued last Thursday, the SNB said the banks' direct exposures to peripheral euro zone countries were relatively low, falling to 46 billion francs in 2010 from 60 billion in 2009, but they could face "considerable losses" if the contagion worsened.
Echoing remarks made by SNB Chairman Philipp Hildebrand last year, Jordan said it was in Europe's interest to solve the debt problem quickly and effectively.
"We're convinced that the European institutions will take appropriate measures that will prevent an escalation of the crisis," he said.
Switzerland is not a member of the European Union but has funded part of the IMF's loan to Greece.
"But also Switzerland has a big interest in the debt crisis not escalating. Via the exchange rate and demand for our exports we're very much affected by these developments."
Between March 2009 and June 2010 the SNB intervened in markets to prevent an excessive appreciation of the franc against the euro. As a result of its interventions, the SNB ran up its biggest annual loss last year and Hildebrand has faced calls for his resignation.
The SNB holds just over 80 percent of its foreign currency reserves in government fixed income. Of its bond holdings, 83 percent are in paper rated AAA, 14 percent in debt with a AA rating, 1 percent has only an A rating and 2 percent is in a category called 'other,' the SNB's website shows.
In a separate article, Der Sonntag said the SNB held a very small amount of Greek debt.
In January the SNB stopped accepting Irish government debt as collateral in its money market operations and stopped accepting Greek debt more than a year ago.
(Reporting by Catherine Bosley; Editing by Andrew Callus)

Empire or Republic. How the Empire Destroys its Own People

On May 29, 2011, President Obama visited Joplin, Missouri , the site of a devastating tornado that killed 140 and pronounced it a terrible "tragedy". But were the deaths the inevitable result of 'natural events' beyond the human intervention?
Coincidentally the same week Afghan President Karzai condemned the killing of a family of 14 by a NATO fighter bomber, running the total to several hundred civilians killed so far this year and thousands over the decade.
The relation between the civilian deaths in Joplin and Afghanistan raises fundamental questions about the priorities, character and direction of the US Empire and the future of the American republic.
Geography of Tornados
Every year at least 20 major violent tornadoes – with winds exceeding 200 mph – hit "tornado alley" and beyond, including central Texas, northern Iowa, central Kansas, Nebraska, western Ohio, Missouri, Indiana, Mississippi, Louisiana and Alabama. Each and every year at least sixty are killed and several hundred are maimed and injured. This year, through May 2011, over 519 have been killed, 25% of whom were in mobile homes, almost three times as many as those in standard houses.
In other words, these tornado-related deaths are predictable, annual, and region-specific and have a higher incidence among low income households. Government agencies and academics have compiled data banks and time series information mapping the route, frequency and impact of tornadoes.
Information about the nature of killer tornadoes is plentiful. Nevertheless deaths mount from year to year. Fear and insecurity stalks the region's most susceptible to the violent whirlwinds, even as the Congress and White House have increased personnel and funding for 'Homeland Security' twenty fold over the decade .The current budget is over $180 billion. If we add the deaths caused by other 'natural' disasters like the flooding of New Orleans , the numbers of deaths are staggering. What explains this perverse relation between huge public funding for 'homeland security' and the increased insecurity of vulnerable Americans in clearly identified danger zones?
The reason is clear: 'Homeland Security' (HS) is an Orwellian misnomer. The agency is not concerned with domestic, civilian, American security. HS is part of a military-police response to imagined overseas threats, which have not materialized or at least have not produced deaths comparable to tornadoes and floods in the last 11 years.
HS spends billions and employs thousands to investigate, spy and harass citizens engaged in legal-constitutional activities. HS and the Pentagon spend tens of billions on overseas infrastructures – buildings, bases, camps -and over 900 billion in arms. HS and the Defense Department forcefully intervene militarily throughout the world via overt and clandestine operations.
To be precise HS intervenes offensively overseas, attacking civilian targets, while it fails to engage domestically to protect American civilians who are left defenseless in the face of predictable natural disasters.
HS and the Pentagon's sustained violent overseas operations are rejected and regarded as a hostile imperial intervention by the civilians in those countries adversely affected. In contrast, defenseless citizens in the US would welcome large-scale intervention in the form of community shelters, which would provide survival, security, life-saving protection and financial aid for rebuilding their lives. Moreover, Pentagon and HS spending on overseas infrastructure, bases and bombs results in deficits, whereas investments in tornado and flood shelters would stimulate jobs, growth and investment in the US .
The current activity of HS destroys lives abroad and neglects survival at home: It has nothing to do with our "homeland" and even less with our "security". Five percent of HS budget would have prevented many of Joplin 's 'tragedy' (and saved us from Obama's gaseous oratory!) and the other 400 deaths from this year's crop of tornadoes.
Systemic Bases of Perpetual Domestic Neglect
Death from 'natural' events raises a fundamental POLITICAL question: Why is the budget of Homeland Security and the Pentagon directed overseas, toward destructive, offensive, military activity rather than to domestic, constructive, defensive activity to protect American lives and productive economic activity?
The problem is systemic not due to some personal flaw or political idiosyncrasy of the moment. The structures of the US economy and military institutions are oriented 'outwardly' to conquering foreign financial markets and building a military empire. The ideology which informs strategic policymakers is imperial-centered not republican: They do not speak of developing and deepening the economy and security of ' middle America '. Every member of the political and corporate elite talks of 'world' or 'global' leadership – a thinly veiled euphemism for the drive to sustain world dominance. Within the imperial framework the entire 'security' budget is directed toward maintaining offensive military supremacy. No wonder there is a steep decline in all spheres of domestic security – natural, social, personal, health and employment –a phenomenon that proceeds with little public debate. The only exception is when threats to security impinge most directly and forcefully on a significant sector of the population. For example, witness the storm of protest from those directly affected when the politicians moved to privatize social security and Medicare.

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Nevertheless, the entire political spectrum, the two parties, the Congress and the White House over the past 30 years, have created an artificial consensus in which overseas wars, foreign aid to patrons (Israel) and clients (Pakistan and Egypt) absorbs the greatest percentage of budgetary spending. No political or economic leadership has stepped forward to articulate the obvious connection between global expansion and domestic decay; to forcefully state that the deterioration of the republic is a direct product of the vast resources channeled into military and economic empire building. Who on New York City 's Wall Street or Washington 's Pentagon is going to even look at or consider a 'security plan' with regard to the geography of catastrophes – tornado alley covering a dozen states and the floods and deaths that overwhelm the lowlands from Montana to Louisiana ?
Listen America
Their message is loud and clear:
Small towns and trailer parks do not count! You have your 2nd amendment (the 'right to bear arms'), you have your 'small government', and you have your flags: 'Wav 'em and weep' as tornadoes blow down your houses and your sons and daughters return wrapped in flags to the Battle Hymn of the Empire!
Conclusion
One might argue that community storm shelters won't break the Treasury or reverse the empire. More to the point, their absence, from the federal, state and local political agenda, is emblematic of the total subordination of domestic America to imperial Washington . The 'cost' of building community shelters at the strip malls and trailer parks in Joplin , Missouri is less than a regional training outpost in Kandahar , Afghanistan . It is not a question of money.
Conquering Afghanistan villages enhances the prestige of the Generals, the Joint Chiefs of Staff and NATO officials. Can saving 145 lives in Joplin , Missouri match that in terms of world politics or the politics of imperial leadership? For Afghanistan , Washington builds a thousand military shelters and bomb proof bunkers .For the Americans living in tornado alley and the flood plains of the Mississippi people must make do.
When you hear the tornado warning, it's up to you. As a proud, free American you can find a rock to crawl under and say your prayer: the Federal government and Homeland Security have the Endless, World-wide War against Terror to fight and cannot be bothered by a Joplin , Missouri nursing home in the path of a tornado.
We exaggerate: Obama will jet in and speak before the cameras in solemn terms of the 'tragedy' and 'courage' of the people of Joplin … But will any local politician stand up and speak truth to power? Most of these deaths and (many more to come) are avoidable; under a democratic American republic, the government 'intervenes' to provide protection, health and employment for its people.
In the meantime, as the empire continues to grow it destroys its own people, just like the sow that devours its offspring.
* James Petras' latest books, Global Depression and Regional Wars (Atlanta, Clarity Press, 2009) is the third in a series, including Zionism, Militarism and the Decline of US Power (Atlanta, Clarity Press 2008) and The Power of Israel in the United States (Atlanta, Clarity Press 2006), analyzing the influence of militarism and Zionism in American foreign policy.
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