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The drought in America has had predictable knock-on effects on expectations of this year’s harvest. There is certainly a sense of panic in the FT’s report (H/T RP Jr):

The world is facing a new food crisis as the worst US drought in more than 50 years pushes agricultural commodity prices to record highs.

Corn and soyabean prices surged to record highs on Thursday, surpassing the peaks of the 2007-08 crisis that sparked food riots in more than 30 countries. Wheat prices are not yet at record levels but have rallied more than 50 per cent in five weeks, exceeding prices reached in the wake of Russia’s 2010 export ban.

However, this is only half the story. Vast quantities of corn in the US have to be converted to biofuels by law.

[T]he biggest potential for a reduction in corn demand comes from the ethanol industry, which is using roughly 5bn bushels of corn, or nearly 40 per cent of the US corn crop, each year to make fuel for cars and animal feed.

In essence, the demands of politicians (and farmers) have, once again, turned a food problem into a food crisis.

You would have thought that after the UN referred to biofuels as a “crime against humanity” there might have been at least a pause for thought. It seems, however, that pork barrel politics can win out over pretty much anything and the headlong rush to reduce the supply of food and to increase the supply of ethanol continues unabated.

And it’s not just in the US either. The Parliamentary Office of Science and Technology (POST; headed by Lord Oxburgh) recently reported on the use of biofuels in the UK and there is little sign of concern over the contribution of biofuels. Indeed, the report notes that a parliamentary inquiry in 2007/8 determined that biofuel production had little impact on food prices. If the proportion of the US corn crop diverted to ethanol production is indeed 40%, it’s hard to imagine how they reached this conclusion.

From the POST report, we learn that the UK government recently published a biofuels strategy. From this, we learn that the Committee on Climate Change has recommended that biofuels targets should be flexible, a suggestion that has met the following response from the government:

We recognise that tensions could exist between bioenergy and food prices. Biofuels mandates that can be temporarily flexed or otherwise relaxed at times of agricultural price pressures have been raised in international fora as possible solutions for reducing the severity of these spikes. We will be undertaking further analysis on the potential merits of this and other mitigating options in the coming months.

I’m sure that people who can no longer afford a loaf of bread will be much reassured by the fact that the UK government is discussing flexing their biofuels mandates.