The US Senate voted on Thursday night to end $6bn
in subsidies for biofuels which consume 40% of US corn output. Worldwide,
biofuels account for 20% of global sugar output.
The House does not have to accept the measure as
tax bills must originate in that chamber while President Obama is a supporter of
the biofuels industry and his Agriculture secretary is a former governor of
Iowa, a corn growing state.
Nevertheless, the 73-27 vote signals broad
bipartisan support for a program that was once seen as untouchable.
Oklahoma Republican Tom Coburn led the move to
repeal the 45-cent blender tax credit for ethanol, as well as the 54-cent tariff
on imported ethanol. Senator Dianne Feinstein, Democrat of California, was the
co-sponsor of the bill.
Currently, most US gasoline contains up to 10%
ethanol, in part because of federal regulations. The Obama administration has
proposed pushing the blend limit to 15%.
Since 2000, US ethanol output has risen
10-fold and corn has gone from less than $2 a bushel to nearly $8.
a report prepared for the G20 group (pdf) of leading developed and emerging
economies, by 10 multilateral organisations, including the World Bank, United
Nations and International Monetary Fund, was published and said that the demand
for food and feed crops for the production of biofuels is another significant
factor in the volatility of food prices.
The report says: "During the 2007-2009 period
biofuels accounted for a significant share of global use of several crops - -
20% for sugar cane, 9% for vegetable oil and coarse grains and 4% for sugar
beet. Projections encompass a broad range of possible effects but all suggest
that biofuel production will exert considerable upward pressure on prices in the
For example, according to one study
international prices for wheat, coarse grains, oilseeds and vegetable oil could
be increased by 8%, 13%, 7% and 35% respectively. Moreover, as long as
governments impose mandates (obligations to blend fixed proportions of biofuels
with fossil fuels, or binding targets for shares of biofuels in energy use),
biofuel production will aggravate the price inelasticity of demand that
contributes to volatility in agricultural prices."