WHesterN Hemisphere

The dramatic rise in food prices of the last few months has made headlines around the globe. The situation is dire and an easier equilibrium is not likely to emerge in the short run. It appears that the best governments can do is manage the crisis to ensure riots and hoarding don’t became the norm. Meanwhile, the United Nations World Food Program, the multilateral agency that delivers a significant portion of the world’s food aid, has pleaded for an extra $500 million to address this precarious situation. Most analysts, experts, and concerned citizens are encouraging the rich industrialized countries to respond to this call.

And they should. After all, it is undeniable that at least part of the blame for this rapid change rests on the policies implemented by these very countries, particularly the combination of biofuel mandates with distortionary   policies – such as production and blending subsidies in addition to import restrictions. This is particularly true to the U.S. and the story is well known. Incentives to production of corn ethanol are such that in a mere two years, American agriculture production – historically a significant contributor to the world’s food supply – has undergone nothing short of a revolution. Gone is the concern with global food markets; now U.S. farmers are expected to contribute to the most pressing issue facing the country: energy security.

It is not surprising that the U.S. is feeling vulnerable. Oil fuels the U.S. economy and while the country is still the world’s third largest producer, its unfettered consumption requires imports of more than 13 million barrels a day. That is equivalent to almost 67 percent of its total demand. While this situation provides a stage for politicians to ramp up fear and for calls of freedom from the jaws of dangerous Middle Eastern suppliers, the reality is that the Persian Gulf only supplies 16 percent of the total imports and of that, 11 percent comes from Saudi Arabia. In contrast, the Western Hemisphere – primarily Canada, Mexico, and Venezuela, and to a much lesser extent, Ecuador, Colombia, and Brazil, provide 54 percent of these imports.

If logic ruled the world of energy security, the US’ first response would be to foster relationships and trade with these two nations. Instead, what is developing is a situation where a vulnerable US turns increasingly protectionist. Close to home, Brazil and Canada are about to take the brunt of   misguided policies:   trade barriers to Brazil’s extremely competitive and environmentally sustainable sugar cane ethanol production; and increasingly aggressive environmental legislation that is singling out Canada’s oil sands production as the least desirable fuel. Further afield, the emphasis on domestic production at any cost is causing havoc to the existing equilibrium. The situation is even more exasperating because it is a contradiction in terms to expect an agriculture crop, which is subject to the vagaries of nature, to deliver security of any kind. As climate change continues to assault our earth, floods and droughts are likely to intensify, causing the situation to become even more precarious.

While in the medium term it is likely that other producers will fill the void left by American farmers, the consequences of U.S. choice of addressing its energy woes by shutting itself away from the world will play out in other arenas. And regardless of the stage, Canada and Brazil will be players. Perhaps it is time these two countries realize what is at stake and join together to remind the U.S. that isolation in the global village only fosters insecurity. And that is the least desirable outcome of all.