One of my favorite economists, Bruce Babcock, again sheds some dispassionate light on the food price/ethanol debate.
In the case of farm programs, it is easy to demonstrate that feed grain and oilseed prices are largely unaffected by U.S. farm subsidies, particularly since 1996 when Congress removed USDA's authority to increase commodity prices through acreage set-asides and subsidized storage. It is also easy to demonstrate that the small share of the final consumer food dollar that goes to the farmer means that even a doubling of feed grain and oilseed prices from expanded biofuels production will lead to relatively modest increases in the prices of meat and dairy products. Food prices are largely determined by costs and profits after commodities leave the farm. [More]The recent clamor from corn growers that high corn prices don't really affect food prices clearly undermines justification for some forms of subsidies as consumer benefits. Subsidies are too rapidly folded into fixed costs to affect output levels, especially now we have a generation trained for decades in subsidy gaming.
Coupled with the global demand surge, we may simply outgrow our farm programs.