Fuel vs. Food: surge in grain prices projected

Washington D.C., USA (GLOBE-Net) – An analysis of current and planned ethanol production facilities indicates that fuel-related demand will draw half of U.S. corn supplies by 2008, causing higher grain prices and disruptions in the global food economy. This conclusion by Lester Brown of the Earth Policy Institute, a prominent environmental think tank, has prompted calls for a moratorium on new ethanol distilleries as protection against rising demands for grain from biofuels producers.

Brown’s conclusions are supported by other authorities. The US Department of Agriculture says that between the food, livestock and ethanol industries, corn demand in the United States will exceed supply and will deplete stockpiles by 2008 unless planting rates increase. Elsewhere “In only very few countries is the required feedstock available at prices that would presently allow ethanol and biodiesel production to be competitive with transport fuels from crude oil without government support,” notes the OECD-FAO Agricultural Outlook: 2006-2015 (PDF).

According to the Earth Policy Institute (EPI), government data on ethanol facilities currently online or under construction has not kept pace with market developments, resulting in a serious underestimation of grain demand. In a recent article by Mr. Brown, he outlines the apparent miscalculation.

The U.S. Department of Agriculture (USDA) projects that distilleries will require only 60 million tons of corn from the 2008 harvest. In contrast, drawing on several different information sources to obtain the most recent data, the Earth Policy Institute (EPI) estimates that distilleries will need 139 million tons - more than twice as much.

The USDA projection is low for several reasons, according to EPI. First, it was released in February 2006, before high oil prices and a policy shift towards ethanol spurred investment in more refineries. Secondly, the USDA relies on the trade group Renewable Fuels Association (RFA), which has lagged behind other industry information sources. The EPI drew on four firms, including the RFA, Europe-based F.O. Licht, BBI International, and the American Coalition for Ethanol (ACE). Each contains some plants that are not on the other lists, says the Earth Policy Institute.

According to Insitute’s compilation, “the 116 plants in production on December 31, 2006, were using 53 million tons of grain per year, while the 79 plants under construction - mostly larger facilities - will use 51 million tons of grain when they come online. Expansions of 11 existing plants will use another 8 million tons of grain (1 ton of corn = 39.4 bushels = 110 gallons of ethanol).” In addition, many more ethanol plants are currently in the planning stages, and if construction trends continue, an additional three billion gallons of ethanol production will require 27 million more tonnes of grain by September 2008.

Corn demanded by distilleries would rise to 139 million tons, half of the 2008 harvest projected by USDA. Almost 15 billion gallons of ethanol would be produced, the equivalent of , 6 percent of U.S. automobile fuel demand

Brown submits that if the “EPI estimate is at all close to the mark, the emerging competition between cars and people for grain will likely drive world grain prices to levels never seen before.” The “unprecedented diversion of the world’s leading grain crop to the production of fuel” would affect food prices everywhere, and could result in substantial political and economic fallout.

The U.S. corn crop accounts for 40 percent of the global harvest, and annual U.S. corn exports of some 55 million tons make up almost one quarter of world grain exports. The corn harvest of Iowa alone exceeds the entire grain harvest of Canada. Substantially reducing this export flow would send shock waves throughout the world economy, Brown says.

Brown proposes several solutions to creating a “crop-based automotive fuel economy”. First, he submits that the 2 percent of U.S. automotive fuel supplies now coming from ethanol could be replaced and then some by raising auto fuel efficiency standards by 20 percent. Alternatively, switching to gas-electric hybrid plug-in cars over the next decade, in combination with investment in renewable energy, could allow U.S. cars to run primarily on electricity from wind energy.

The Earth Policy Institute also advocates a moratorium on new distilleries until it can be determined how much corn can be used for ethanol without impacting grain prices too severely. A policy goal should be to “use just enough fuel ethanol to support corn prices and farm incomes but not so much that it disrupts the world food economy”, says EPI. In combination with this would be a strong push to produce cellulose ethanol from switchgrass and other non-food biomass.

Increased corn prices will also have an impact on Canada’s ethanol and grain markets.

Much of Canada’s ethanol is currently produced from imported corn, though the country does produce 372 million bushels of corn each year. While filling the 5 percent ethanol requirement would take more than half of Canada’s corn crop, ethanol can also be produced from other sources, such as wheat and barley.

Eventually, cellulose ethanol technology could resolve the feedstock problem by allowing production from virtually any agricultural waste, such as corn husks or straw.

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