Ethanol Increasing Food (and Beer) Prices

Since Fidel Castro posed the question a few months ago, people are starting to wonder whether it morally acceptable to divert food resources toward the energy crisis in affluent countries (rather than take proactive measures) when there are hundreds of millions of people starving worldwide?

Now, the stars appear to be aligning between democrats and the Bush administration in pushing an even more aggressive and ill-founded corn-based biofuel agenda, despite a Government report today that confirms many of the worst fears about its increasing dominance. The non-partisan GAO report found substance to warnings about including deforestation, strained land and water resources, increased food prices and poverty. It expects biofuels to account for about 1/3 of the total corn produced by 2012.

Already, as a result of US subsidies, an enormous volume of corn is being consumed for ethanol production. Consequently, the price of corn futures has skyrocketed from $2.80 to $4.38 a bushel. The impacts are being felt not only by corn buyers around the world (including in Mexico, where riots forced the “free market” President Calderon to instate price controls earlier this year) but also most other grains. The price of beer has even gone up because the switch from barley to corn production has doubled barley prices in 2 years. Hold everything, I think we have a winning angle! For meat lovers, we have an equally dire predictions from the US cattle rancher association. Joining the cattlemen in opposing the latest legislation are the Grocery Manufacturers Association, the National Turkey Federation, the National Pork Producers Council, Tyson Foods and others.

The proposed legislation would dramatically increase the amount of renewable fuels mandated to be used in future years. Much of the growth is to come from a yet unrealized form of ethanol made from switchgrass and other “cellulosic” materials. However, a Rueters report today says this new form of ethanol could be limited by competition from corn growers. Apparently the corn subsidies are so attractive at the moment as to exclude serious industry attention.

The slack from underperforming cellulosic materials may have to be taken up by corn-based ethanol, which receives quite a boost under the proposed legislation as well. Corn-based ethanol is the least energy efficient form of biofuel, resulting in little (if any) reduction in net carbon footprints. Beyond that, there is a report that says the building boom in ethanol plants will go bust by the end of this year, scuttled by increased supplies of the fuel, falling prices and reduced return on investment, according to researchers at Iowa State University.

To cap off the exciting day of ethanol news, China has issued rules to ban food-based biofuels in their alternative energy programs. The government decided the food concerns were too real to a population where many still earn less than a dollar a day and depend on cheap foodstuffs for survival. Good for China.