Ethanol Demand Is Boosting Food Prices Worldwide

hereisnowhy writes "The rising demand for corn as a source of ethanol-blended fuel is largely to blame for increasing food costs around the world, the CBC reports. Increased prices for ethanol have already led to bigger grocery bills for the average American — an increase of $47 US compared to July 2006. In Mexico last year, corn tortillas, a crucial source of calories for 50 million poor people, doubled in price; the increase forced the government to introduce price controls. The move to ethanol-blended fuel is based in part on widespread belief that it produces cleaner emissions than regular gasoline. But a recent Environment Canada study found no statistical difference between the greenhouse gas emissions of regular unleaded fuel and 10 per cent ethanol-blended fuel. Environmental groups have argued that producing ethanol — whether from corn, beets, wheat, or other crops — requires more energy than can be derived from the product."

Comments

Monbiot:"People - and the environment - will lose"

[toby]

George Monbiot wrote about this 2 months ago in the UK Guardian:

If we want to save the planet, we need a five-year freeze on biofuels

Oil produced from plants sets up competition for food between cars and people. People - and the environment - will lose

George Monbiot
Tuesday March 27, 2007
The Guardian

It used to be a matter of good intentions gone awry. Now it is plain fraud. The governments using biofuel to tackle global warming know that it causes more harm than good. But they plough on regardless. In theory, fuels made from plants can reduce the amount of carbon dioxide emitted by cars and trucks. Plants absorb carbon as they grow - it is released again when the fuel is burned. By encouraging oil companies to switch from fossil plants to living ones, governments on both sides of the Atlantic claim to be "decarbonising" our transport networks.

In the budget last week, Gordon Brown announced that he would extend the tax rebate for biofuels until 2010. From next year all suppliers in the UK will have to ensure that 2.5% of the fuel they sell is made from plants - if not, they must pay a penalty of 15p a litre. The obligation rises to 5% in 2010. By 2050, the government hopes that 33% of our fuel will come from crops. Last month George Bush announced that he would quintuple the US target for biofuels: by 2017 they should be supplying 24% of the nation's transport fuel.

So what's wrong with these programmes? Only that they are a formula for environmental and humanitarian disaster. In 2004 I warned, on these pages, that biofuels would set up a competition for food between cars and people. The people would necessarily lose: those who can afford to drive are richer than those who are in danger of starvation. It would also lead to the destruction of rainforests and other important habitats. I received more abuse than I've had for any other column - except for when I attacked the 9/11 conspiracists. I was told my claims were ridiculous, laughable, impossible. Well in one respect I was wrong. I thought these effects wouldn't materialise for many years. They are happening already.

Since the beginning of last year, the price of maize has doubled. The price of wheat has also reached a 10-year high, while global stockpiles of both grains have reached 25-year lows. Already there have been food riots in Mexico and reports that the poor are feeling the strain all over the world. The US department of agriculture warns that "if we have a drought or a very poor harvest, we could see the sort of volatility we saw in the 1970s, and if it does not happen this year, we are also forecasting lower stockpiles next year". According to the UN food and agriculture organisation, the main reason is the demand for ethanol: the alcohol used for motor fuel, which can be made from maize and wheat.

Farmers will respond to better prices by planting more, but it is not clear that they can overtake the booming demand for biofuel. Even if they do, they will catch up only by ploughing virgin habitat.

Already we know that biofuel is worse for the planet than petroleum. The UN has just published a report suggesting that 98% of the natural rainforest in Indonesia will be degraded or gone by 2022. Just five years ago, the same agencies predicted that this wouldn't happen until 2032. But they reckoned without the planting of palm oil to turn into biodiesel for the European market. This is now the main cause of deforestation there and it is likely soon to become responsible for the extinction of the orang-utan in the wild.

But it gets worse. As the forests are burned, both the trees and the peat they sit on are turned into carbon dioxide. A report by the Dutch consultancy Delft Hydraulics shows that every tonne of palm oil results in 33 tonnes of carbon dioxide emissions, or 10 times as much as petroleum produces. I feel I need to say that again. Biodiesel from palm o

and corn farmers everywhere

[zappepcs]

are rejoicing. Not only has the US government mandated the use of corn and corn derived products in just about everything that US consumers use, now their profit margins will soar above whatever they were being subsidized for. Most corn in North America is big business farming, so they are off and running toward all those dollars, no matter how inefficient using corn is for fuels.

All we have to do now is declare corn growers as reducing global warming, and that every stalk of corn planted saves a child to make the headlong rush toward bio-diesel an unrecoverable flop.

Few Clarifications & Corrections

[AKAImBatman]

A study released in May from Iowa State University shows increased prices for ethanol have already led to bigger grocery bills for the average American -- an increase of $47 US compared to July 2006.

If I'm not mistaken, that means $47 per year. Which really isn't that bad when you notice the price of gasoline lately.

The move is based in part on wide-spread belief that ethanol-blended fuel produces cleaner emissions than regular gasoline.

Ethanol is not really chosen for its environmental friendliness. The environmental models I know of are based on the fact that the increased crop production produces a greater number of carbon sinks. Increases in carbon sinks won't show up in the EPA testing.

The real reason for choosing ethanol is its availability. It's easy to come by and is currently cheaper than gasoline. The US also has a great deal of surplus farming capacity from which to draw greater yields. (Though folks generally argue about how much surplus capacity there is, and how much can be brought online before food production is seriously impacted.)

Environmental groups have argued that producing ethanol -- whether from corn, beets, wheat or other crops -- takes more energy than is derived from the product.

Actually, that comes from the US Government's ethanol studies done in the 1970s. Dr. David Pimentel headed up those original studies. Since then, technology has improved and the US Government's studies have shown it to be energy positive. However, Dr. Pimentel has continued to rely on the outdated figures in attempts to discredit the newer findings. So the ethanol community is in a bit of a flux, with Pimentel rallying his forces against the idea that ethanol is a sustainable energy source.

Let's not forget...

[Radon360]

...that most fertilizers and pesticides applied to corn are derived from petroleum bases. Farming equipment also uses diesel/gasoline during the planting, cultivating and harvesting of corn. Adding to this, natural gas and propane are commonly used to run corn dryers used to reduce the moisture content of the harvested corn. At one point in 2005, the cost of the fuel for these dryers was more than the revenue produced from the corn itself, making it a wash to even bring the corn to market.

Sure, the price of corn is being driven up by its use for ethanol production, but let's not forget that the cost of growing corn has risen sharply as well in recent years, mostly due to the rising price of petroleum based products.

Re:Let's not forget...

[ookabooka]

While algae would yield 8000 gallons of biodiesel and 5000 gallons of ethanol per acre. . .and it requires less water (closed system) and that water can be salt water (set up algae farms near coast, use seawater). . .

I call BS!

[ElForesto]

Corn shortage my eye. The reason corn is a prime target for ethanol production is because, nationally, we grow far more corn than we need. You can thank farm subsidies for that little gem. Because it's all subsidized, corn is dirt cheap compared to a lot of other crops which is a major factor in using corn syrup instead of cane sugar in a lot of foodstuffs. The NY Times recently had an article (registration or BugMeNot required) on the egregious farm subsidies and how they make junk food artificially cheap to buy. Some highlights:

• The cost of fresh produce increased in price in terms of real dollars by over 40% between 1985 and 2000 whereas soft drinks using corn syrup declined in cost by 23%.
• A dollar buys you 1200 calories of cookies or chips but just 250 calories worth of carrots.
• The top subsidies are for corn, rice, wheat, soybeans and cotton. There often translate into cheap meats and dairy as most of this gets reused as animal foodstuffs.
• Most estimates are that subsidized US corn has displaced over 2 million Mexican farmers who move north to get jobs.

Blaming ethanol production for these ills is just plain stupid. Follow the money of the farm bills for real answers.

This could actually be a very good thing!

[RingDev]

The gateway for most countries to get out of the third-world-nation status is agriculture. The problem though is that the US government subsidizes US farmers so heavily that we are keeping the world market prices artificially low. If the ethanol demand increases crop values, the market will demand more crops and more poor farmers out side the US will suddenly have a profitable profession, spreading wealth, profit and MORE FOOD.

Either that, or we're gonna kill a lot of people.

only time will tell.

-Rick

Alarmist reporting? Also, NAFTA...

[i8-p]

The change in prices in Canada, according to the article, was 3.8% year-on-year. Inflation, per the Bank of Canada, is 2.0%. That is a world-wide increase in prices? Inflation aside, the impact of transportation fuel prices on bringing food to the grocery store can easily account for that increase.

As for Mexico, how many ethanol plants are there in Mexico, a country that produces 3.5 mm bbl/day of oil and consumes 2.0 mm bbl/day of oil products (source: April IEA OMR)? Not that many. So why the impact in Mexico? It's because the US used to grow so much corn that we couldn't use that we dumped it on the Mexican market, lowering their cost of corn, and taking some of their producers out of the market. The sudden increase in ethanol production due to oil product price increases has sucked up this additional supply, and now those producers will come back into the market.

Yes, it sucks that Mexican consumers were hit with such a swing this year, but it's due more to NAFTA than anything else. So if you want to get your knickers in a twist about something (which I don't advise), blame free trade and the natural delay in the supply/demand feedback loop. But note how there weren't a bunch of articles when the price of tortillas went down after the implementation of NAFTA.

Re:Corn-based Ethanol is a Tragedy

[Z34107]

Maybe I'm wrong, but doesn't most third world countries depend on agriculture products as exports? So if agriculture products become more expensive, the food they buy is more expensive, but they will also have more money with which they can buy the expensive food.

Most third world countries can't export agriculture products because there's no-one to export to. First world countries, (read: the US and EU) have very powerful agriculture lobbyists. Our government subsidizes agriculture production - our farmers can produce the same crop cheaper than the African farmer because the government pays most of his costs. Even if the African farmer could produce a bushel of corn or cotton or whatnot cheaper than a domestic producer, tariffs and quotas prevent him from selling there.

If food becomes more expensive, the third-world countries are SOL. The vast majority of people in the world (first or third) are not commercial farmers who sell the food they grow, so the price increase benefits very few people.

In the meantime, starving people have to pay more for the same inadequate rations.