Mr Glauber [chief economist for the Department of Agriculture] said that ethanol was likely to consume 24 per cent of the maize harvest.That struck me as remarkable, so I looked into it a bit further. According to the IMF's 2008 World Economic Outlook, ethanol will actually consume 31% of the entire U.S. corn crop in 2008 (see Appendix 1.2, fn. 16). If the U.S. meets its mandate to quintuple ethanol production by 2022, then by 2015 ethanol will consume roughly 50% of the U.S. corn crop.
The U.S. is far and away the biggest corn producer in the world. According to the Department of Agriculture, the U.S. will produce 332 million metric tons of corn in 2008. If 31% of the U.S. corn crop is being used for ethanol, that means ethanol will consume roughly 103 million metric tons of corn. World corn production in 2008 is estimated to be roughly 772 million metric tons. Thus, U.S. ethanol is consuming roughly 13% of the corn produced in the world.
Ponder that for a second: U.S. ethanol is consuming roughly 13% of the corn produced in the world. How much would food prices go down if there was a 13% increase in the supply of corn used for non-ethanol purposes? I don't know. But I imagine it wouldn't be an insignificant price reduction -- especially for poor countries.
Now, some of the 103 million tons of corn being used for ethanol wouldn't have been produced without the ethanol subsidies, so it's a bit unfair to fail to control for that factor. On the other hand, the increased corn production also puts upward pressure on other commodity prices. From the 2008 World Economic Outlook (pg. 60):
Biofuel demand has propelled the prices not only for corn, but also for other grains, meat, poultry, and dairy through cost-push and crop and demand substitution effects.On balance, then, it's probably fair to say that in the absence of U.S. ethanol, the supply of corn used for non-ethanol purposes would increase by less than 13%, and that such an increase would lower prices across a wide range of commodities.
The WEO also has these great charts on commodities:
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