Wednesday, January 07, 2009

From the Scottsbluff Star-Herald
Corn prices have fallen by more than 50 percent recently and oil prices have been tumbling, but food prices continue to soar. That doesn't square with the prevailing narrative about how ethanol manufacturing is driving up food prices.
In a nutshell, critics argue that the corn that's being turned into a share of the nation's automobile fuel deprives the world of an important food source. In response, a group of ethanol producers have launched a new organization, Growth Energy, and an ad campaign that they say will set the record straight on food prices.
They say cost of food has increased at 7.6 percent in the past year, the worst rate of the past 20 years, and has continued to increase while the cost of corn and other commodities have fallen in the past four months.
They point to the rising costs for a market basket of different foods and to the rising profits of a group of companies they call Big Food, and blame groups such as the Grocery Manufacturers Association for a campaign to blame the increases on ethanol producers by pressing claims that biofuel production increases the demand and cost of corn, which in turn forces food processors to raise prices for consumers.
"Corn and commodities prices are significantly lower now so according to GMA's argument, if biofuels were forcing food prices up previously, the lower cost of corn should have already brought food prices back down," said Dave Vander Griend, CEO of ICM. "All indicators show that the cost of food will remain high in the months to come, proving Big Food's argument is fundamentally flawed. Our current low-priced corn, high-priced food economic situation shows that the experts were right - biofuels production does not lead to increased food costs."
In touting their contribution to the nation's economy, ethanol producers say that in 2007, the industry contributed $47.6 billion to the nation's GDP, created more than 200,000 jobs and generated an estimated $4.6 billion in revenues for the federal government.
Beyond their argument, though, are a few other considerations. For one, the corn that creates ethanol never was eaten by humans. It was mostly fed to cattle and other livestock (and even part of the corn used to make ethanol, the so-called distiller's grain byproduct, still is). As the price of corn rose it wasn't diverted from feedlots. Producers simply grew more.
Increasing demand for corn might have increased the cost of a steak or pork chop, but the real culprit in higher food prices is higher transportation costs. Ethanol is blended with gasoline, which accounts for less than half of every barrel of crude oil. The rest of each barrel is refined for other products, such as fuel oil, asphalt and, notably, diesel fuel. Demand for gasoline has tapered off. Demand for diesel hasn't, and neither has the cost of transporting farm and food products. Ethanol can't replace diesel fuel.
The Energy Information Administration projects that demand for diesel fuel will grow about four times faster than that of gasoline through 2015. By 2030, diesel demand is expected to increase about 14 times faster than that of gasoline, with domestic diesel consumption rising by 51 percent and gasoline consumption rising by 3.6 percent over 2006 levels. That means higher diesel prices are likely to persist, even if ethanol puts a dent in demand for gasoline. Energy Information Administration figures show no decrease in crude oil imports.
In fact, they're rising, from about 9.4 million barrels in 2000 to about 10.1 million barrels today.
So in a sense both sides are wrong. Ethanol won't erase our need for foreign oil, because we use more than just gasoline. And turning corn into fuel doesn't drive up food prices, because it wasn't intended for human consumption in the first place. Ethanol's not the cause of high food price, diesel is.
If you want to cut the cost of food, in fact, think biodiesel. Nature isn't making any more crude oil. The cost of it will continue to climb. But biodiesel, extracted from the oil in plants, is renewable. Algae that convert sunlight to vegetable oil and similar innovations can eventually replace much of the diesel made from crude oil.
It's true that ethanol can't replace gasoline as vehicle fuel. But plant-based fuels aren't the problem either. In fact, they'll be an important part of the nation's energy future.