'Agflation' Raises Grain Prices, but Not Corn Ethanol

This is the VOA Special English ECONOMICS REPORT.

Right now, many people around the world are feeling the pain of "agflation." Agricultural inflation has been hitting the price of grains and other products. Food prices have risen under pressure from energy costs and growing world demand for food, as well as local problems like the weather.

In the United States, grain prices are reaching historic highs. And supplies have dropped to lows not seen since the nineteen seventies. For one of America's leading crops, the growing use of corn to make fuel has driven up the price.

The government has strongly supported ethanol production. In two thousand five, Congress set a national goal of using twenty-eight billion liters of ethanol a year by two thousand twelve. President Bush and Congress have since expanded that goal. As a result, farmers are planting more corn.

But more hectares of maize for ethanol mean fewer hectares for crops like soybeans. Meat producers now have to pay more for soybeans because there is less available for animal feed. This is how corn-based ethanol affects the price of meat products.

Rising grain prices could signal a change for agricultural commodities around the world.

For years, developing countries have opposed government support for farmers in wealthy nations. They make the case that farm subsidies drive down prices for agricultural products, hurting poor farmers. Subsidies have been one of the major disputes limiting progress in the Doha development round of world trade talks.

Now, there is worry that the increasing demand for food could drive prices too high, hurting the buying power of the world's poor.

Many developing countries have a growing middle class. More people than ever have money to buy high-value agricultural products like meat and milk. In China, for example, Premier Wen Jiabao has called for increased milk production. More milking cows means the need for more feed.

Yet prices are not rising for all agriculture-based products. In the United States, while the price of corn remains high, it has not affected ethanol prices. In fact, in recent months, those prices have dropped about thirty percent. Production has expanded faster than demand, so now there is a big oversupply of ethanol.

And that's the VOA Special English ECONOMICS REPORT, written by Mario Ritter. Transcripts and archives of our broadcasts are at voaspecialenglish.com. I'm Steve Ember.