Grain Shortages, Rising World Food Prices -
and Ethanol Backfires?
© 2008 by Linda Moulton Howe
“Achieving the 15% (Bush) goal (to replace 15% of domestic gasoline
with biofuels in 10 years) would require the entire current U. S. corn crop,
which represents a whopping 40% of the world's corn supply.”
- Colin Carter, Ph.D., UC-Davis
Corn ethanol plant in South Dakota. Image © 2006 by Greg Harp.
April 18, 2008 Davis, California - In February , I received a phone call from a North Dakota farmer who I had talked to before on other farm issues. He said he and his wheat farmer colleagues were having a hard time finding durham wheat seed to plant for a crop later this year. He wondered why there was such a short seed supply. Wheat prices have risen from $4/ a bushel in 2007 to around $25/bushel this spring of 2008.
The U.S. Department of Agriculture confirms that global wheat stocks are at their lowest level in 30 years, while U.S. wheat stocks are the lowest they’ve been in 60 years. Hard red spring wheat, used especially by the baking industry, has been scarcest of all. North Dakota leads the nation in acres devoted to certified seeds and Steve Sebesta, North Dakota's Deputy Seed Commissioner, says hard red spring seed is down 15% from its North Dakota volume in 2007.
East Coast bakeries have faced huge increases this year in the prices they have to pay for flour. Len Amoroso, Executive Vice President of Amoroso's Baking Co. in Philadelphia told The Wall Street Journal, “We are talking about prices that are just unheard of.” The middle of February 2008, he was paying $48 per 100 pounds of flour from hard red spring wheat, which he uses to make sandwich rolls and other bakery products. A year ago, Mr. Amoroso said he was paying about $14.60.
Then came worldwide headlines from the World Bank, International Monetary Fund (IMF) and United Nation's Food and Agriculture Organization (FAO) warning that mounting food prices in 37 poorer countries was going to provoke more violent riots, as already happened in Haiti, Egypt and the Philippines.
On April 11, 2008, Haitians look at the damages
caused by looters at a gas station in Port-au-Prince, Haiti, during riots
to protest high food prices. At least five people died. On April 12, 2008, Prime
Minister Jacques Alexis was fired over the food riots. Image © 2008 by Reuters.
On April 14, 2008, President George Bush ordered Agriculture Secretary Ed Schafer to release $200 million from a reserve known as the Bill Emerson Humanitarian Trust in emergency aid to help where rising food prices are causing people to starve and riot. That money was released the day after the World Bank called upon the international community to "put our money where our mouth is" to help immediately the poor in Haiti, Egypt and the Philippines where protests over escalating food prices have provoked violence. At least 34 other poor countries in the world are also struggling to eat.
What happened between last year and this year to cause wheat, soy, and other grain seed shortages in at least some local American regions and what is forcing food prices to rise so rapidly in the United States and internationally?
I took that question to Colin Carter, Ph.D., Prof. of Agricultural and Resource Economics at the University of California – Davis. Prof. Carter received his Ph.D. in Agricultural Economics from the Univ. of California – Berkeley in 1980 and has spoken before Congressional committees on agricultural economy issues.
A year ago in the May 17, 2007 issue of the Los Angeles Times, he co-authored an Opinion piece entitled, “Why Ethanol Backfires.” [ See Websites below.] The article begins:
“Policymakers and legislators often fail to consider the law of unintended consequences. The latest example is their attempt to reduce the United States' dependence on imported oil by shifting a big share of the nation's largest crop, corn, to the production of ethanol for fueling automobiles.
President Bush has set a target of replacing 15% of domestic gasoline use with biofuels (ethanol and biodiesel) over the next 10 years, which would require almost a fivefold increase in mandatory biofuel use, to about 35 billion gallons. With current technology, almost all of this biofuel would have to come from corn because there is no feasible alternative. However, achieving the 15% goal would require the entire current U.S. corn crop, which represents a whopping 40% of the world's corn supply. This would do more than create mere market distortions; the irresistible pressure to divert corn from food to fuel would create unprecedented turmoil.
...it would make far more sense to import ethanol from Brazil and other countries that can produce it efficiently (from sugar cane and corn) - and also to remove the 54-cents-per-gallon tariff on Brazilian ethanol imports.”
So, I asked Prof. Carter if it were correct to focus on the ethanol policy in the U.S., which is increasing the amount of American soil devoted to ethanol production instead of food, as perhaps the cause of dominoes falling in grain seed shortages, higher food prices and a growing international food crisis in poor countries?
Interview:
Colin Carter, Ph.D., Prof. of Agricultural
and Resource Economics, UC-Berkeley.
Colin Carter, Ph.D., Prof. of Agricultural and Resource Economics at the University of California – Davis, Davis, California: “One bushel of corn gives you approximately 2.8 gallons of ethanol. So, it would take virtually the entire corn crop to produce 35 billion gallons of ethanol to meet President Bush's goal.
You take 10 billion bushels of corn x 3 instead of 2.8 to make calculation easier = 30 billion. So, there’s your total U. S. corn crop right there. There's also talk about using other materials for ethanol, such as switchgrass. That’s great and there’s a lot of research going on in that area and it would be wonderful if we found a new crop that was virtually costless. But, the technology is not there. The infrastructure is not there. It’s true you can produce ethanol from switchgrass. But we don’t have the mechanism for collecting and transporting it. What are the economics of that?
[ Editor’s Note: Wikipedia - Switchgrass (Panicum virgatum) is a warm season grass and is one of the dominant species of the central North American tallgrass prairie. It can be found in remnant prairies, along roadsides, pastures and as an ornamental plant in gardens. Other common names for it include tall panic grass, Wobsqua grass, lowland switchgrass, blackbent, tall prairiegrass, wild redtop and thatchgrass. Switchgrass can be used to make cellulosic ethanol.
Field of 12-foot-tall switchgrass.
In his 2006 State of the Union Address, U. S. President George W. Bush touted switchgrass as an efficient and environmentally friendly biofuel that could reduce the USA's dependence on oil. Currently, the bulk of ethanol is made from grains, primarily corn. Cellulosic ethanol on the other hand is made from the woody matter of plants, such as the corn stalks.
Two grasses have been prominent in cellulosic discussions: Switchgrass, and Miscanthus. Switchgrass is a species native to North America and is well suited to the Great Plains and even the depleted cotton farms of the American South. It needs little water, fertilizer or pesticides. The DOE has demonstrated yields that support the average fuel requirements of three cars per year from one acre. Miscanthus is reported to double the yield of switchgrass. Miscanthus is native to Europe. Sterile strains are available for those concerned with invasive species.]
As we say in the article, producing ethanol from sugar is much more efficient than from corn. With corn, you have to turn it into sugar first. So, producing ethanol from sugar cane is a heck of a lot more efficient. That’s what Brazil is good at. But we keep that product out with a tariff.
SO, WHY DID THIS ADMINISTRATION FOCUS ON CORN?
Corn farmers! (laughs) ADM.
[ Editor’s Note: Wikipedia - Archer Daniels Midland (ADM), is one of the largest agricultural processors in the world. ADM website: “Serving as a vital link between farmers and consumers, we take crops and process them to make food ingredients, animal feed ingredients, renewable fuels and naturally derived alternatives to industrial chemicals.”
Founded in 1902 and incorporated in 1923, ADM is headquartered in Decatur, Illinois, and operates processing and manufacturing facilities across the United States and worldwide. ]
“Who do you suppose benefits from this policy? It’s companies like ADM, who have ethanol plants. And the corn producers. Now we have the problem that a lot of farmers have invested money into building ethanol plants in their communities. Have you read about all the problems associated with those?
NO, PLEASE EXPLAIN.
Oh, it’s a mess! If you look at the website, Renewable Fuels Association, that has a lot of information about this. The number of ethanol plants have just exploded and lots of those are owned by farmers.
Purple dots are 139 biorefineries in production. Gold squares are biorefineries under
construction. Source: Renewable Fuels Association, January 24, 2008.
So, if we reverse the current ethanol policy, we’ve got a problem where all these local ethanol plants will go broke. But right now, the communities are pushing back because the ethanol plants use a lot of water, are drawing down water tables and they are polluting the local environment - versus those who benefit from the higher price of corn and subsidized ethanol. Those are the ones pushing the Bush ethanol policies.
SO, BUSH'S ETHANOL POLICY IS AN IMPOSSIBLE ADMINISTRATION GOAL, CORRECT?
Well, it’s a ridiculous goal! People say that in ten years, we’ll have all this other technology up and running. Maybe, but we’ve been working on that for a long time, too. Meanwhile, look at what’s happening to the price of corn.
IF THE U. S. KEEPS PUSHING FOR A 15% DOMESTIC GASOLINE REPLACEMENT BY BIOFUELS, THEN WE WOULD CONTINUE TO BE HURTING THE WORLD’S INTERNATIONAL SUPPLY AND DEMAND IN GRAINS AND CORN?
Yes, absolutely, in terms of the poor consumers of the world. So let’s import ethanol from Brazil!
AND WHY NOT?
Well, why not is a good question. It’s the National Corn Growers Association, Linda. Look at their website. They don’t want to reduce the tariff with Brazil. If you reduce the ethanol tariff, all the local ethanol plants would go out of business.
I grew up on a farm. If I were a corn farmer in Iowa, I’d be real happy right now. It’s American politics. You’ve read about lobby groups and how Congress really works. There is no turn over in Congress. Re-election depends upon getting money. How do you get money? You give people favors.
BUT THIS IS THE FIRST TIME THAT A GOVERNMENT POLICY HAS SAID WE’RE GOING TO SET A GOAL OF REPLACING 15% OF DOMESTIC GASOLINE USE WITH BIOFUELS, WHICH INCLUDES ETHANOL AND BIODIESEL. AND THIS MEANS THAT THE UNITED STATES IS MAKING A FIRST TIME CHANGE IN HOW IT’S GROWING ITS FOOD AND THAT IS HAVING A DOMINO EFFECT ON THE ENTIRE INTERNATIONAL GRAIN AND CORN MARKET.
No question. We made a decision to move massive amounts of our farmland into the production of fuel. And people were told this will reduce our dependence on foreign oil, it will help reduce greenhouse gases and so on. All these points, you really have to question.
THAT’S WHY YOU WROTE THE LA TIMES OPINION PIECE IN MAY 2007, ‘WHY ETHANOL BACKFIRES.’
That’s right.
Ethanol Future?
CAN YOU NOW EXPLAIN YOUR PERSPECTIVE A YEAR LATER ABOUT HOW ETHANOL CONTINUES TO BACKFIRE AND WHAT YOU SEE COMING IN THE FUTURE?
I hate to say it, but I think we were right. The past year certainly has demonstrated that we were right when we wrote that article. It continues to backfire because the U. S. government has increased the goal for biofuels by a huge factor this past December 2007 (even beyond 15%).
THAT WOULD MEAN THAT THIS CURRENT BUSH ADMINISTRATION IS COMMITTING ALL OF THE CORN ACREAGE OF THE UNITED STATES TO PRODUCING GASOLINE OVER THE NEXT DECADE.
Well, they won’t admit that, but it's true. And in the legislation, Linda, there is a limit on how much can come from corn. But it’s still high!
BUT FROM YOUR POINT OF VIEW, WE’RE ON A DISASTROUS POLICY PATH.
It’s an absurd policy, not unlike a lot of other policies that we observe in Washington, D. C.
WHAT COULD WE DO TO CHANGE THE UNITED STATES TO A MORE LOGICAL AND SENSIBLE PATH THAT WAS NOT HURTING THE REST OF THE WORLD’S CORN AND GRAIN MARKETS?
The first thing is to drop the import tariff on ethanol from Brazil. Allow our American industry to compete.
Second, eliminate the subsidy for blending. There’s another 50 cents/gallon subsidy. If ethanol is a great idea, it should not have to be subsidized.
SUBSIDY FOR BLENDING – COULD YOU EXPLAIN THAT?
As you go to the gas pump these days, most of the fuel you put in your car is blended, right? It’s got maybe 5% ethanol of something else. There’s a tax credit that oil companies receive when they blend ethanol with gasoline and I believe it’s 51 to 52 cents/gallon now.
WHICH IS REINFORCING THE POLICY SHIFT TO ETHANOL AND THE USE OF CORN ACREAGE FOR CREATING ETHANOL.
That’s right. We have mandated a quantity of ethanol that must be used in the country now and it is 9 billion gallons. So, that’s 3 billion bushels of corn, which is 25% to 30% of the American corn crop.
AND THE GOVERNMENT WANTS AT LEAST 35 BILLION GALLONS IN TEN YEARS, WHICH WOULD TAKE THE ENTIRE AMERICAN CORN ACREAGE.
If it come only from corn. But presumably in ten more years, we’ll be using other feedstocks.
Mid-West Drought Could Send
Grain Prices “Through the Roof ”
FROM APRIL 2008 GOING FORWARD, WHAT DO YOU THINK THE WORST CASE IS IN A YEAR OR 15 MONTHS FROM NOW?
Worst case is that we have a major drought in the corn belt and acreage yield suffers 15%. That’s worst case.
WHAT WOULD HAPPEN?
I think we pointed out in the LA Times piece that grain prices would go up through the roof if there were a major drought. Or some other catastrophe.
IF THE U. S. STAYS ON THIS PATH OF ETHANOL, WHICH YOU HAVE DESCRIBED AS BACKFIRING, WHAT IS THE WORST CASE IF WE DO NOT CHANGE THE POLICY OF TRYING TO REACH 35 BILLION GALLONS OF ETHANOL REPLACEMENT OF GASOLINE IN TEN YEARS?
People start to starve to death. How many deaths will it take before we admit that the ethanol policy has backfired? How many people have to starve to death in Africa? If prices continue to rise sharply, I would hope there is pressure put on politicians to reverse the ethanol policy. But I really don’t know if that will happen or how long the backfiring ethanol policy will keep going.”
The price of corn has doubled in 2007 to 2008 from $2 to $4 a bushel.
Until the recent ethanol boom, more than 60% of the annual U. S. corn harvest was fed domestically to cattle, hogs and chickens or used in food or beverages. But with
the U. S. diversion of corn to ethanol production, even the price of tortillas
has jumped rapidly in Mexico. Image courtesy USDA
15070 Category:(Conspiracy) Created:(4/24/2008 11:48:00 PM)