Notes from the Twin Cities: The thirst for ethanol
Two recent articles from the Pioneer Press in St. Paul, Minnesota, reveal the speed at which subsidies are driving the production of ethanol in the US, and the environmental costs that are quickly becoming apparent. The US, like many other countries, has recently mandated minimum levels of ethanol as a fuel additive. "Suddenly, so many new ethanol plants are planned in (corn-growing) Minnesota that a once-unthinkable debate has begun: Will there be enough corn to go around?" writes Tom Webb.

Last year ethanol production consumed one-eighth of Minnesota's corn production. But the figure could quickly jump to 40 percent if the plants currently seeking permits are built. Indeed, if ethanol becomes "lucrative enough, farmers will plow up grasslands, quit raising other crops and even plant marginal lands to cash in on corn," warns Iowa State economist Bob Wisner. (Click here for the full article.)

Other concerns are also emerging. These ethanol plants are thirsty for water, writes Dennis Lien, also in the Pioneer Press. "With so many plants on the horizon and water shortages possible, the state is ramping up warnings to companies to be extra careful about choosing where to build," writes Lien. Some 4 to 5 gallons of water are needed to produce one gallon of ethanol. Given the planned growth of ethanol plants, demand for water could increase from the current 2.5 billion gallons to 10 billion gallons a year. "That's almost a enough water to supply every home in Washington County for a year," writes Lien. (Click here for the full article.)

WRI subsidy paper
Reforming Agricultural Subsidies: "No Regrets" Policies for Livelihoods and the Environment, by the World Resources Institute, a Washington-based non-governmental organization, addresses agricultural subsidies in rich countries and their impact on poverty and the environment in developing countries. The authors maintain that even without a Doha Round agreement at the WTO, developed countries will find themselves under pressure to reduce their agricultural subsidies, either through legal challenges under existing WTO agreements or domestic pressure in the face of dwindling public budgets. That provides an opportunity for developing countries, note the authors, but only if the right policies are in place to take advantage of subsidy reduction in richer countries.

CAP paper by Groupe d'Economie Mondiale and ICONE
EU Negotiating Room in Domestic Support after the 2003 CAP Reform and Enlargement, commissioned by the Institute for International Trade Negotiations in São Paulo, analyses agricultural subsidies in the European Union (EU) in light of the recent reforms to the Common Agricultural Policy (CAP) and the accession of ten new members to the EU. Its author, Géraldine Kutas, a researcher and adjunct professor at the Groupe d'Economie Mondiale (GEM) at the Institute d'Etudes Politiques de Paris (Sciences-Po), finds that the new members to the EU have had little impact on the EU's position at the WTO. Most of the payments to these countries are not tied to production, and therefore fall into the so-called green box of allowable subsidies. Notably, the study also finds that the EU can offer more when it comes to cuts to trade distorting agricultural subsidies: "proposals (at the WTO) fit the 2003 CAP reform package and, in the case of the blue box and overall trade-distorting supports, the EU still has some room to maneuver to offer deeper cuts."

OECD: USD 44 billion from trade reform
A new report from the Paris-based Organisation for Economic Co-operation and Development finds that halving trade protection and domestic support across all sectors could potentially generate USD 44 billion in welfare gains globally. Nearly all countries gain, although those with the highest levels of protection benefit the most, while for many developing countries, the initial gains would be quite small.