Why Ethanol Production will Drive Food Prices Even Higher in 2008
by Lester Brown, Washington, D.C on 02. 3.08
We are witnessing the beginning of one of the great tragedies of history. The United States, in a misguided effort to reduce its oil insecurity by converting grain into fuel for cars, is generating global food insecurity on a scale never seen before. (Full report here.)
The world is facing the most severe food price inflation in history as grain and soybean prices climb to all-time highs. As a result, prices of food products such as bread, pasta, and tortillas, as well as pork, poultry, beef, milk, and eggs, are everywhere on the rise. In Mexico, corn meal prices are up 60 percent. In Pakistan, flour prices have doubled. China is facing rampant food price inflation, some of the worst in decades.
By late 2007, the U.S. price of a loaf of whole wheat bread was 12 percent higher than a year earlier, milk was up 29 percent, and eggs were up 36 percent. In Italy, pasta prices were up 20 percent.
The reason: demand is simply outpacing supply. In seven of the last eight years world grain production has fallen short of consumption. These annual shortfalls have been covered by drawing down grain stocks, but the carryover stocks—the amount in the bin when the new harvest begins—have now dropped to 54 days of world consumption, the lowest on record. (See data.)
From 1990 to 2005, world grain consumption, driven largely by population growth and rising consumption of grain-based animal products, climbed by an average of 21 million tons per year. Then came the explosion in demand for grain used in U.S. ethanol distilleries, which jumped from 54 million tons in 2006 to 81 million tons in 2007. This 27-million-ton jump more than doubled the annual growth in world demand for grain. If 80 percent of the 62 distilleries now under construction are completed by late 2008, grain used to produce fuel for cars will climb to 114 million tons, or 28 percent of the projected 2008 U.S. grain harvest.
Historically the food and energy economies have been largely separate, but now with the construction of so many fuel ethanol distilleries, they are merging. If the food value of grain is less than its fuel value, the market will move the grain into the energy economy. Thus as the price of oil rises, the price of grain follows it upward.
The World Bank reports that for each 1 percent rise in food prices, caloric intake among the poor drops 0.5 percent. Millions of those living on the lower rungs of the global economic ladder, people who are barely hanging on, will lose their grip and begin to fall off.
Since the budgets of international food aid agencies are set well in advance, a rise in food prices shrinks food assistance. The U.N. World Food Programme (WFP), which is now supplying emergency food aid to 37 countries, is cutting shipments as prices soar.
As grain prices climb, a politics of food scarcity is emerging as exporting countries, including Russia, Argentina, and Viet Nam, are restricting exports to limit the rise in domestic food prices.
There is much to be concerned about on the food front. We enter this new crop year with the lowest grain stocks on record, the highest grain prices ever, the prospect of a smaller U.S. grain harvest as several million acres of land that shifted from soybeans to corn last year go back to soybeans, the need to feed an additional 70 million people, and U.S. distillers wanting 33 million more tons of grain to supply the new ethanol distilleries coming online this year. Corn futures prices for December 2008 delivery are higher than those for March, suggesting that market analysts see even tighter supplies after the next harvest.
Whereas previous dramatic rises in world grain prices were weather-induced, this one is policy-induced and can be dealt with by policy adjustments. The crop fuels program that currently satisfies scarcely 3 percent of U.S. gasoline needs is simply not worth the human suffering and political chaos it is causing. If the entire U.S. grain harvest were converted into ethanol, it would satisfy scarcely 18 percent of our automotive fuel needs.
The irony is that U.S. taxpayers, by subsidizing the conversion of grain into ethanol, are in effect financing a rise in their own food prices. It is time to end the subsidy for converting food into fuel and to do it quickly before the deteriorating world food situation spirals out of control.
(The full report is online for free downloading. For a more detailed discussion of this issue, see Chapter 2 in Plan B 3.0, available for free downloading.
The link to the report seems to be broken, where it says "(Full report here.)" at the top. Thanks!
When are you guys and the rest of the corn watchers going to start talking about the amount of corn that is converted into high fructose corn syrup?? You know, the cheap sweetener causing much of the obesity in the developed world. Between ethanol (and we haven't seen it around here yet) and everything containing the corn sugar stuff, how can there be any corn left left?
You caring but uneducated in the wrong fields, have forced this problem on the world by not allowing new oil reserves to be explored and coast line reserves to be tapped. What goes around comes around. Food costs in the US are less of a percentage of GNP than any where in the world. Do you want quality food and quality fuel. ?? We will pay more for both. Ethylnol is not ment to be cheaper for us, it is ment to get us away from paying for the terrorist money coming from us to them through oil payments to mid eastern oil states. We want, but do not want to pay for it. No oil refineries in over 30 years ??? THANKS for getting us into this mess in the first place . Environmental issues have been unsolved by fear and backwoods ideas. We have the tech to solve these problems, but uneducated in chemistry and science folks have been legislating,lawyers, us with stupid laws that have held progress back 40 years. I am a retired Organic Chemist. We have the knowledge, but not the will to use it. We need to think outside the box.
I just notice that my yogurt do not contain high fructose corn syrup any more. Corn become too expensive to convert it to high fructose corn syrup.
The fructose is responsible for all the obesity problem in US.
That a good note.
Food for fuel should be baned, otherwise we facing starvation on the large scale. Rise in food price is a first sign.
The first goal for all industries should be improvement of efficiency then alternative fuels.
In US 444 gallons of fuel is use per person per year as spouse to 70-120 in Europe, 9.5 in China and 2.5 in India.
At list if we could get to the level of European.
We need deep reform in the States , deep reforms...
There has always been a problem around the world when it comes to hunger. The problem is not with the production, but theh distribution of it!
Gas prices have gone up doesn't that have a lot 2 do with the increase!
My grocery dollars certainly do not go as far as they used to go a few months ago. From what I understand, this is only the beginning.
The resources exist on this planet so that no one should have to go hungry, however due to greed and corruption that is not the case.
I try to do my small part by teaching my children to be good global citizens and even passing on eco-tips to friends and collegues, yet I am feeling that such a small effort is not making a difference at all.
I would have liked to have seen a link to the policy governing ethanol production and suggestions to offset that policy, perhaps even a sample letter to a congressperson. To create change - action is mandatory. If we can make that action user friendly, all the better.
I just read an article that the US farm industry is actually going to grow less corn this year than last year. Why? Farmers are not talking to one another, apparently. Someone should do a follow up on this report.