Uh-Oh!

Didn't see this coming. Haha, just kidding... everyone totally saw this coming. Recall a previous post linking to an article in which Cato calls the energy bill, which provides subsidies for American biofuels, "a moment of idiocy".

Turns out, researchers at the Smithsonian Tropical Research Institute are attributing recent increases in the deforestation in the Amazon to the billions of dollars in subsidies for the production of corn. To briefly summarize, U.S. is the world leader in soy bean production. However soy farmers are switching to corn in order to qualify for subsidies. Soy production in the U.S. fell 15 percent. This of course, means downward pressure on supply creates upward pressure on price. An upward movement price will entice new producers to enter the market to take advantage of the favorable return until the supply is driven back up to is original equilibrium and price is driven back down as well. Brazil is the worlds second largest soy producer.

"High soy prices affect the Amazon in several ways. Some forests are cleared for soy farms. Farmers also buy and convert many cattle ranches into soy farms, effectively pushing the ranchers further into the Amazonian frontier. Finally, wealthy soy farmers are lobbying for major new Amazon highways to transport their soybeans to market, and this is increasing access to forests for loggers and land speculators."

So maybe nobody's first guess was deforestation of the Amazon, but there are certainly people out there that voiced that this would have untold impact on markets and economic conditions as well as environmental consequences.