CNNMoney.com
12-07-07
Ethanol bill fuels food costs
Expect the price of beef, pork, chicken and a host of other goods to go up if the
House energy bill becomes law. But the trade-off may be worth it.
By Steve Hargreaves, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- If a recently passed House bill mandating a 7fold increase in biofuels becomes law, there's little doubt food prices will rise.
The question is by how much, and is the trade-off worth it?
On Thursday the House, as part of a larger energy package, passed a bill
mandating the increased use of biofuels - fuel from ethanol and other plant
matter largely used to power vehicles - from current levels of about 6 billion
gallons a year to 36 billion gallons a year by 2022.
House leans green on sweeping energy bill
The move is supported by environmentalists, who say biofuels generate about 20
percent less greenhouse gasses than fossil-based fuels like gasoline. Corn
farmers and the ethanol industry are obviously on board.
The bill also has the support of those what want to reduce U.S. oil consumption.
Over 60 percent of the country's oil is imported - mostly from Canada, Mexico
and Venezuela. That 36 billion gallons of biofuel could replace roughly 25
percent of the nation's current gasoline consumption of about 140 billion gallons
a year.
But it's clear the biofuels mandate, which calls for 15 billion gallons a year of
corn-based ethanol and another 21 billion gallons from "advanced biofuels" that
use other plants besides food crops, will drive up the price of corn.
With it, the price of other corn-dependent products like chicken, pork, or items
that use corn syrup, like soda, which have already seen an increase, are likely to
rise further.
Karen Batra, a spokeswoman for the National Cattleman's Beef Association, said
that corn prices are already up 21 percent this year. "The ranchers are already
taking a hit."
Food prices overall have risen 4.5 percent over the last year, according to Brian
Todd, president of the industry association the Food Institute. Meanwhile, prices
for other consumer goods excluding food and energy have risen about 2 percent
this year.
But Todd said rising energy prices in general have played a big part in this. In
addition to transporting food by truck, the industry is dependent on other oil or
natural gas-based goods like fertilizer and packaging plastic.
"In most cases, I think it's probably pretty marginal," Todd said of ethanol's
impact on food prices.
The Department of Energy agrees.
"Up to 15 billion gallons [of ethanol] probably would not impact food prices
significantly," said Andy Aden, a senior biofuels research engineer at DOE's
National Renewable Energy Lab. "But that's where we draw the line."
Significant is a subjective measure, and the House bill will likely impact livestock
producers and other corn users more than consumers, said Jacinto Fabiosa,
Co-Director of the Food and Policy Research Institute at Iowa State
University.
Fabiosa said only about 25 percent of the price of pork at the retail level reflects
costs on the farm. So if the price of corn goes up 10 percent, the farmers' overall
cost might go up 5 percent, but the ultimate retail price for a pork chop may only
rise 1 or 2 percent.
"There's going to be a significant increase at the farm level, but how that
translates at the retail level is another matter."
A study by Fabiosa and his colleagues, estimates that a 15 billion gallon increase
in ethanol production would translate into a 4 percent increase in the retail price
of eggs, a 2 percent increase in the price of meat, and a 0.5 percent increase in
overall food prices.
Fabiosa noted that Americans spend only about 10 percent of their income of
food, so for them the increase may be palpable. But he said people in other
nations spend up to 50 percent of their income of food. That would hurt people
who eat imported food like corn, wheat or soybeans, but may help overseas
farmers who grow those crops for export.
Of course, there are other problems associated with ethanol. Critics have said
the vast amounts of water and fertilizer required to grow the corn take a toll on
the land. But so far environmentalists seem to be behind the House bill.
Battle over ethanol benefits
"You can do it the right way, and you can do it the wrong way," said Eli Hopson,
Washington representative for the Union of Concerned Scientists. "This bill is a
good step towards doing it the right way." The Sierra Club and the Natural
Resources Defense Council also support the bill.
Hopson said provisions in the bill requiring the biofuels to emit 20 percent fewer
greenhouse gasses than fossil fuels - a feat that could be met by ensuring proper
land management and using cleaner refineries - is one way the bill gets things
right.
There are also questions about ethanol's efficiency. Ethanol is about 30 percent
less fuel efficient than gas, but the DOE stands by its claim that overall, ethanol
is a positive fuel source, yielding 1.3 units of energy for every 1 unit of fossil fuel
needed to make it. Advanced biofuels, like cellulosic ethanol which is thought to
be commercially viable in the next few years, yield 5 or 10 times the energy
required to make them. The House bill does relax the mandate if the cellulosic
technology never materializes.
The oil industry is against the measure, saying the blending requirements are
needlessly complex and transporting the ethanol - which can't be shipped by
normal pipeline because it absorbs water - will be a nightmare.
"The renewable fuel title sets up a new crazy-quilt of boutique biofuels that could
strain, indeed could break, the nation's fuel supply system, American Petroleum
Institute President Red Cavaney said in a recent statement.
And there are others who question whether the government should be so heavily
involved in a matter that could be decided by the market. Supporters contend
some government help is needed in the short term to guarantee investment in a
market that is notorious for wide price swings, and also say ethanol is hardly the
only industry the government has helped.
The White House has criticized the bill for not allowing the mandate to ease
enough in the event prices rise too far, and says it promotes some fuels over
others. But it's other parts of the broader energy bill - like raising taxes on oil
companies and requiring utilities to buy renewable power - that have drawn fire
from Republicans and veto threats from the Bush Administration.
The bill now heads to the Senate, where it faces a tough battle before it could
advance to the president's desk. To top of page
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