Ethanol and Food Prices

Why Ethanol Production Will Drive World Food Prices Even Higher in 2008

We are witnessing the beginning of one of the great tragedies of history. The United States, in a misguided effort to reduce its oil insecurity by converting grain into fuel for cars, is generating global food insecurity on a scale never seen before.

The world is facing the most severe food price inflation in history as grain and soybean prices climb to all-time highs. Wheat trading on the Chicago Board of Trade on December 17th breached the $10 per bushel level for the first time ever. In mid-January, corn was trading over $5 per bushel, close to its historic high. And on January 11th, soybeans traded at $13.42 per bushel, the highest price ever recorded. All these prices are double those of a year or two ago.

As a result, prices of food products made directly from these commodities such as bread, pasta, and tortillas, and those made indirectly, such as pork, poultry, beef, milk, and eggs, are everywhere on the rise. In Mexico, corn meal prices are up 60 percent. In Pakistan, flour prices have doubled. China is facing rampant food price inflation, some of the worst in decades.

One tankful of the latest craze in alternative energy could feed one person for a year, Lester Brown tells Fortune. The growing myth that corn is a cure-all for our energy woes is leading us toward a potentially dangerous global fight for food. While crop-based ethanol -the latest craze in alternative energy – promises a guilt-free way to keep our gas tanks full, the reality is that overuse of our agricultural resources could have consequences even more drastic than, say, being deprived of our SUVs. It could leave much of the world hungry.

We are facing an epic competition between the 800 million motorists who want to protect their mobility and the two billion poorest people in the world who simply want to survive. In effect, supermarkets and service stations are now competing for the same resources. This year cars, not people, will claim most of the increase in world grain consumption. The problem is simple: It takes a whole lot of agricultural produce to create a modest amount of automotive fuel.

The grain required to fill a 25-gallon SUV gas tank with ethanol, for instance, could feed one person for a year. If today's entire U.S. grain harvest were converted into fuel for cars, it would still satisfy less than one-sixth of U.S. demand. For the world's poorest people, many of whom spend half or more of their income on food, rising grain prices can quickly become life threatening.

Once stimulated solely by government subsidies, biofuel production is now being driven largely by the runaway price of oil. Many food commodities, including corn, wheat, rice, soybeans, and sugar cane, can be converted into fuel; thus the food and energy economies are beginning to merge.

The market is setting the price for farm commodities at their oil-equivalent value. As the price of oil climbs, so will the price of food. The key to lessening demand for grain is to commercialize ethanol production from cellulosic materials such as switchgrass or poplar trees, a prospect that is at least five years away.

Less costly alternatives

There are truly guilt-free alternatives to using food-based fuels. The equivalent of the 3% of U.S. automotive fuel supplies coming from ethanol could be achieved several times over – and at a fraction of the cost – by raising auto fuel-efficiency standards by 20%. (Unfortunately Detroit has resisted this, preferring to produce flex-fuel vehicles that will burn either gasoline or ethanol.) Or what if we shifted to gas-electric hybrid plug-in cars over the next decade, powering short-distance driving, such as the daily commute or grocery shopping, with electricity?

By investing not in hundreds of wind farms, as we now are, but rather in thousands of them to feed cheap electricity into the grid, the U.S. could have cars running primarily on wind energy, and at the gasoline equivalent of less than $1 a gallon. Clearly, solutions exist. The world desperately needs a strategy to deal with the emerging food-fuel battle. As the world's leading grain producer and exporter, as well as its largest producer of ethanol, the U.S. is in the driver's seat. Lester R. Brown is president of the Earth Policy Institute and author of “Plan B 2.0: Rescuing a Planet Under Stress and a Civilization in Trouble.”

It's time for a real “food vs. fuel” debate

Can U.S. farmers keep filling the nation's bellies as they scramble to fuel its cars?

Given its evident gravity, the question has drawn remarkably little debate. Like it or not, though, more and more food is being devoted to fueling the nation's 211-million-strong auto fleet. High gasoline prices, a dizzying variety of government supports, and an investment frenzy have caused corn-based ethanol production to more than triple since 1998.

Can a ‘renewable fuel’ rely on mining a finite resource?

Anyone who's checked out the stock chart of Mosaic – the fertilizer giant, two-thirds owned by agribiz behemoth Cargill, recently profiled here – knows that the fertilizer industry has been essentially printing money.

But the Investors Business Daily article really started to pique my interest when it turned to phosphorus – the “P” of NPK (nitrogen, phosphorus, potassium), the main macronutrients required for plant growth.

Of course, industrial agriculture makes a fetish of NPK. Like a ‘70s-era faddist who thinks you can maintain health while eating whatever junk food you want, so long as you take a vitamin pill containing “100 percent RDA” of every vitamin, industrial agriculture enthusiasts insist that by isolating NPK and dumping it into soil, you’ve solved the problem of soil fertility.

NPK mentality neglects micronutrients and forgets that healthy soil relies on teeming populations of microorganisms, whose function we don't fully understand. Lashing the soil with industrial fertilizer doesn't renew life in the soil; it squeezes life out. Someday, I predict, NPK dogma will crumble and seem as absurd as relying on a bowl of Total for nourishment.

For now, though, we live in an NPK world – and biofuel production relies absolutely on mined and synthesized macronutrients.

Biofuels not helpful in climate-change fight, new studies say

Two new studies published in the journal Science conclude that growing and burning biofuels actually increases net greenhouse-gas emissions and exacerbates climate change. The new research questions the assumptions of earlier studies, making sure to incorporate the effects of land-use changes into emissions calculations. When land-use changes are taken into account, turns out that plowing up rainforests and grasslands to make way for biofuel crops tips the balance, making biofuels more problematic than helpful.

Biofuels proponents, including the powerful U.S. ethanol lobby, have for years cited figures asserting that biofuels made from crops like corn release about 20 percent fewer emissions overall than gasoline and that fuel from switchgrass emits about 70 percent less. One of the new studies, however, found that due to the impact of plowing up new fields, corn-based ethanol nearly doubles greenhouse-gas emissions compared to gasoline and that fuels made from switchgrass increase emissions by about 50 percent.

Not all biofuels were net losers, though. The study authors suggested that producing biofuels from waste products still makes sense.

Researchers find corn ethanol, switchgrass could worsen global warming

Some very respected researchers today have lobbed a real bombshell into the energy public policy world: they have concluded that ethanol produced both by corn and switchgrass could worsen global warming.

In other words, these studies really challenges orthodox thinking and prior assumptions about the impact of biofuels on greenhouse gas production.

These studies are unique in that they take a comprehensive look at the emissions effects of the huge amount of land that is being converted to cropland globally to support biofuels development.

“When you take this into account, most of the biofuel that people are using or planning to use would probably increase greenhouse gasses substantially,” said Timothy Searchinger, the lead author of one of the studies and a researcher in environment and economics at Princeton University. “Previously, there's been an accounting error: land use change has been left out of prior analysis.”

E.U. says it will be mindful of sustainability in boosting biofuels

Realizing that biofuel production can have negative social and environmental consequences, the European Commission says it will propose “strict conditions that biofuels used in the European market are produced in a sustainable way” instead of barreling ahead willy-nilly (because really, that would be crazy). The commission will announce specific climate-change mitigation plans later this month; it previously declared a goal for biofuels to make up 10 percent of all E.U. transportation fuel by 2020, but E.U. Environment Commissioner Stavros Dimas says it would be better to miss that target than to meet it by harming the poor or the land. “We have seen that the environmental problems caused by biofuels and also the social problems are bigger than we thought they were. So we have to move very carefully,” says Dimas. “We have to have criteria for sustainability.” Perhaps the E.U. could export some common sense across the pond?

Oxfam warns Europe's biofuel boom likely to worsen plight of world's poor

The anti-poverty charity Oxfam said this week that the European Union's rush to biofuels could hit the world's poor quite hard. The group released a report about the issue suggesting that without proper controls to make the biofuels boom sustainable and more just, it's likely to threaten the food supply and provide a large incentive to heavily concentrate land ownership for biofuels production, pushing many poor subsistence farmers and others off their land. Oxfam suggested that the E.U. work to ensure land rights, labor standards, and food security are protected in the countries that produce its biofuels, including Brazil, Colombia, Indonesia, Malaysia, and Tanzania. “In the scramble to supply the E.U. and the rest of the world with biofuels, poor people are getting trampled,” said Oxfam's Robert Bailey. “The E.U. proposals as they stand will exacerbate the problem. It is unacceptable that poor people in developing countries should bear the cost of questionable attempts to cut emissions in Europe.”

United Nations report outlines the trouble with biofuels

Remember how biofuels were going to save us? That lasted about as long as an ice cream cone on a hot day. A new United Nations report says the switch to biofuels, if not well managed, could lead to rampant deforestation, food and water shortages, and increased poverty. It also says using biofuels for heat and power is a better and cheaper way to cut greenhouse-gas emissions than using them for transportation. With demand exploding, 17 countries have committed to growing crops like palm oil, corn, and soy on a large scale. But, the U.N. warns, that could lead to erosion, nutrient leaching, and – if the crops replace forests – “large releases of carbon from the soil and forest biomass that negate any benefits of biofuels for decades.” On the upside, biofuels do hold the promise of making clean energy available to millions. But the U.N. recommends a certification program for an industry that is, says U.N. energy coordinator Gustavo Best, “so fast and so disorganized … and so misinformed.”