"Rapid development of the corn-based ethanol industry is already having adverse impacts on food supplies and prices." That's the claim in a letter from leading food companies to Senate Majority Leader Harry Reid (D-Nev.) Headlines earlier this year blamed a tortilla shortage in Mexico on high U.S. corn prices and margarita drinkers must now worry about a future tequila shortfall because Mexican farmers are ripping up their agave fields to plant corn.
The ethanol rush is definitely on. There are now 110 ethanol plants operating in the United States and 74 more are on the way. The competition between food producers and fuel refiners has doubled corn prices in the past year from $2 to over $4 per bushel. At the same time, the price of groceries has gone up 3.9 percent in the last year, faster than the general inflation rate of 2.6 percent. Coincidence?
Corn is primarily fed to cows, hogs, and chickens, so higher corn prices should lead to higher prices for milk, beef, pork, poultry and eggs. And sure enough, on June 15, the Bureau of Labor Statistics (BLS) reported that through the first five months of 2007, beef prices had risen 5.1 percent, poultry prices, 4.3 percent, and pork prices, 3.4 percent. Higher corn prices have had broader effects too.
The prices for other food crops jump when corn goes up because farmers choose to plant less of them. For example, the U.S. Department of Agriculture projects that farmers will boost corn acreage from 80 million in 2006 to 94 million acres this year. Most of the increased acreage devoted to corn will come from reduced soybean acreage. Fewer soybeans means translates into higher prices.
But hold on before placing all the blame for food price increases on the ethanol boom. What else are people complaining about? Higher gasoline prices. Energy prices increased 36 percent in the first five months of 2007. Higher fuel prices boost the distribution costs of food as well as the costs of agricultural inputs like diesel for tractors and fertilizer. Consumers are experiencing a food double whammy, corn prices and gas prices conspiring to make their grocery bills soar. As a consequence, the BLS projects that food prices could increase by 7.5 percent by the end of the year.
Congress evidently believes that American energy independence depends, in part, on turning massive quantities of food into fuel. The energy bill being debated in the Senate would mandate that 36 billion gallons of ethanol be produced for transport fuel by 2020. President Bush is more or less on board since he proposed a 35 billion gallon mandate in his last State of the Union speech. This is on top of the 2005 requirement that 7.5 billion gallons of ethanol be produced by 2012. Almost one-third of the U.S. corn crop will be used to produce ethanol in 2012.
Some energy hawks might argue that breaking our dependence on foreign oil is worth higher food prices. After all, on average Americans spend about 10 percent of their incomes on groceries. Doubling that would bring us back to the good old days of the 1950s when families spent about 20 percent of their incomes on food. Doubled food prices would not mean mass starvation for Americans. However, our biofuels frenzy will not only starve oil despots of cash, but it could end up literally starving millions in poor countries.
The International Food Policy Research Institute (IFPRI) looked at how ethanol production would affect the prices of various staples around the world up through 2020. In the Institute's most aggressive biofuels scenario, the United States replaces only 4 percent of its gasoline demand in 2020 with bioethanol. Congress and President Bush want to triple this to around 12 percent. So IFPRI numbers likely underestimates the effect that turning food into fuel will have on world food prices. In any case, the IFPRI scenarios are sobering enough. In the best case scenario, the technology for breaking down the tough cellulose fibers in non-crop sources such as crop wastes, trees, and switch grass makes a major contribution to ethanol supplies by 2020. In addition, agricultural research dramatically boosts crop productivity, making more crops available for producing both food and fuel.
In the best case, IFPRI projects that corn prices will go up 23 percent, wheat, 16 percent, cassava, 54 percent, and sugar cane, 43 percent. If there is no cellulosic ethanol breakthrough and crop productivity increases at the current rate, the price of corn would increase 41 percent, wheat, 30 percent, cassava, 135 percent, and sugar cane, 66 percent. What would this mean for the world's poor?
In an article entitled, "How Biofuels Could Starve the Poor," in the current issue of Foreign Affairs, two University of Minnesota professors of agricultural policy, C. Ford Runge and Benjamin Senauer, argue that "the number of food-insecure people in the world would rise by over 16 million for every percentage increase in the real prices of staple foods." They calculate that would mean that would be 600 million additional hungry people by 2025, rising to a total of 1.2 billion.
Another way to look at it is that it takes 450 pounds of corn to make enough ethanol to fill a 25-gallon gas tank. Four hundred and fifty pounds of corn supplies enough calories to feed a person for one year. The USDA projects that in 2010 the ethanol industry will consume 2.6 billion bushels of corn. A bushel weighs 56 pounds, so a quick calculation yields the result that 2.6 billion bushels of corn could supply enough calories to feed nearly 325 million people for a year.
But why focus blame on gas-guzzling SUVs? After all, one-third of the world's grain is now fed to animals to produce meat. If we're really worried about the world's poor, shouldn't we give up not only SUVs, but brisket, bacon and breasts too? The amount of grain that actually goes into producing a pound of meat is controversial. However, the non-profit consortium of 37 scientific societies, the Council on Agricultural Science and Technology estimates that it takes around 3 kilograms of grains to produce 1 kilogram of meat. In 1999, CAST calculated that "an annual rate of growth in cereal production between 1.1 and 1.4 percent, i.e., a lower rate than in recent decades, should meet needs for both food grains and the feed grains required to meet the [world's] projected per capita demand for meat, milk, and eggs." When all is said and done meat is still food. Biofuels will now compete with meat production for grain supplies.
"Famine," observes Dennis Avery, the director of the Hudson Institute's Center for Global Food Issues, "is a human society's ultimate failure. Tightening the world's food supply by diverting major quantities of its grain stocks into fuels will drive up the prices of all food. This will inevitably hit hardest at the poorest people in the world's food-shortage regions. This would not be ethical even if there were no other sources of energy."
But then, the world's poor do not participate in Iowa's presidential caucuses.
Ronald Bailey is Reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.
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