Science News
07-22-06
Demand for Ethanol May Drive Up Food Prices
Ben Harder
Harvests of corn and other crops are likely to be drawn into a tug of war between
people's need for food and their need for fuel, agricultural economists say.
Corn is the most cost-efficient and popular raw material used in the United States
to make ethanol. That's important because the fuel has gotten increasingly
competitive with gasoline as oil prices have risen.
"The lines between the food economy and the energy economy [are] becoming
blurred," says agricultural economist Lester R. Brown, president of the Earth
Policy Institute in Washington, D.C. Last week, his organization issued an
economic analysis on the subject.
The analysis found an emerging "competition between the 800 million people
who own automobiles and the 2 billion low-income people, many of whom
already spend over half their income on food," Brown says. Furthermore, he
says, "taxpayers may be subsidizing a rise in their own food prices."
To encourage the use of alternative fuels, U.S. law subsidizes ethanol production
at 51 cents per gallon and production of other so-called biofuels at up to $1 per
gallon. Those incentives tempt farmers to sell crops to biofuel distilleries or, if
they instead sell to food manufacturers, to demand higher prices than they
otherwise would.
One-fifth of corn and almost one sixth of the U.S. grain harvest overall goes
toward ethanol production, according to the institute's report. And while the
world's production of grain will grow by about 20 million tons this year, 70 percent
of the increase could be used to generate ethanol for U.S. automobiles, Brown
says.
Combustion vs. consumption
"Ethanol plants [are] being built, and they're starting to pull more corn their way,"
comments agricultural economist Chad E. Hart of Iowa State University in
Ames. "We're seeing already higher projected prices than normal for the 2007
crop."
Predicting that the growth of the ethanol industry could drive up food prices as
early as next year, Hart notes that corn futures are trading at about $3 per
bushel, or about 50 cents higher than usual.
With demand for corn rising, production is also likely to increase, Hart says.
Higher corn prices will lure farmers to devote more acres to cultivating corn and
fewer to other crops. That, he says, will encourage "an across-the-board increase
in crop prices"—as well as in the price of animal feed derived from such crops.
"If corn price goes up, you'll probably feel it more in the cost of your steak than
the cost of your cornflakes," Hart says.
Processing, packaging, and distribution costs account for more than 90 percent
of the commercial price of cornflakes, bread, and other grain-based products.
"Most of the cost of [products such as] bread is not in the cost of the raw
materials," Hart says.
By contrast, the cost of feed for animals and other expenses incurred on
livestock farms account for about half of the commercial price of meat and eggs,
and nearly a third of the cost of cheese. Therefore, Hart says, higher corn prices
aren't likely to translate into penny-for-penny increases in food costs.
In addition, Hart says, byproducts of ethanol production from corn, such as corngluten meal, can be used to feed livestock. That way, not all the corn used to
make fuel is diverted from the food supply.
"So the price impact on livestock products will likely be relatively small in
comparison to the change in corn prices," he says.
A technological shift away from corn-based ethanol toward ethanol made from
non-crop plants could eventually reverse the anticipated rise in crop costs, Hart
says.
A scientific study published last week finds that making ethanol from corn
generates less new energy than does manufacturing certain other kinds of
biofuel, such as biodiesel made from soybeans (see Farm-Fuel Feedback:
Soybeans have advantages over corn).
But if ethanol remains the primary alternative fuel in the United States, a possible
replacement for corn could be cellulose from other plants. A weedy plant called
switchgrass, for instance, is a productive source of that material, and the plant
can be grown in abundance on land unsuitable for crops.
Of a mostly switchgrass-based ethanol industry, Hart says: "While it's technically
feasible, it's not commercially viable at this time. For the U.S., corn is the best
model going right now."