BBC News, Iowa
12-17-07
By: Adam Brookes
Corn's key role as food and fuel
The price of food is on the rise. On the Chicago markets, the price of a bushel of
wheat has gone over $10 for the first time. Soybeans are at a 34-year high. And
corn is hitting new highs as well.
The International Monetary Fund says that over the past 12 months, "the world
has experienced a substantial inflationary shock in the form of higher food
prices".
Simon Johnson, chief economist at the IMF, points to three factors as
responsible for the spike in prices.
First, increased demand from emerging economies like India and China, where
consumers are demanding more calories in their diet.
Second, weather. Droughts have had an impact in some parts of the world.
But third is the contentious relationship between food and fuel. And to
understand this relationship, it pays to look at corn.
Corn prices, according to the IMF, have doubled over the past two years. And in
significant part, that is due to demand for the biofuel, ethanol, and the way in
which ethanol policy is made in the United States.
"Corn has become all things to all people," says Simon Johnson. "It used to be
fuel for people. Now it's fuel for cars."
Unintended consequences
Making biofuels for our cars from corn is now big business.
At the Lincolnway Energy Plant in Ames, Iowa, truck after truck unloads vast
quantities of corn. This plant is, in essence, a gigantic still. And it turns out 50
million gallons of ethanol every year.
Mix ethanol with petrol, say its makers, and you get a fuel which lowers harmful
emissions and reduces dependence on imported oil.
The IMF applauds the desire to diversify fuel sources, and to find renewable
sources of energy.
But, says Simon Johnson: "The law of unintended consequences is in effect.
When we increase demand for biofuels to create ethanol to mix with our gasoline
to drive our cars in the United States, that is increasing demand for corn.
"It's causing the price of corn to go up and that affects both corn prices and other
food prices in the United States. But affecting them in the United States is the
same thing as affecting them globally."
Larsson Dunn, a former chemistry professor who runs the Lincolnway ethanol
plant, argues that Iowa, and US agriculture, are fertile and technologically
advanced enough to meet demand for food and fuel.
"We have the most efficient farmers and some of the best farmland in the world
in the Midwest. So we're able to efficiently produce enough grain for food and
produce surpluses for fuels."
Alternative uses
Because corn is such an important ingredient in our food supply, higher corn
prices mean higher prices for all sorts of things you might not expect.
We stopped for breakfast at The Cafe in Ames, Iowa, where they cook a
wonderful plate of steak and eggs.
On the plate you see how important corn is to our diet. Corn pancakes; steak
from cattle fed on tons of corn; tomato ketchup flavoured with corn syrup; and an
egg - whose yolk is turned a rich yellow by feeding the chicken corn products.
And the alternative uses of corn go way beyond biofuels.
At Iowa State University, scientists are pulling this grain apart and finding that its
chemical constituents can make all sorts of things.
Larry Johnson, director of the Center for Crops Utilisation Research at
Iowa State, showed us paper finished with corn-derived chemicals, charcoal
briquettes bound with corn products, even a shirt woven from a corn-based fibre.
And he, too, believes there is no tension between food and fuel.
"We believe we can have both food and fuel," he says. "These things are totally
compatible with each other, and we are going to devise new cropping systems
that are going to allow us to do that as well."
US subsidies
In the coming years, say the experts, other crops - sugar cane, switchgrass,
jatropha trees - may well grow into potent sources of renewable fuels.
But, says the IMF, those crops - many of which are grown in developing
countries - will make slow headway as a source of renewable fuels while ethanol
policy in the United States remains the way it is.
The US government offers generous financial subsidies to companies that blend
ethanol and petrol, and has placed obstacles in the way of cheaper ethanol
imports.
"Industrial countries," writes Simon Johnson, "need to seize this moment and
eliminate subsidies."
Allowing freer trade in biofuels should, he says, help agricultural sectors
everywhere.
But more people in more countries are now seeking more and better food. And if
we want biofuels too, we may have to expect higher food prices.