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Tuesday, February 13, 2007 Ethanol Demand Threatens Food PricesRising corn prices are already affecting everything from the cost of tortillas in Mexico City to the cost of producing eggs in the United States.
The recent rise in corn prices--almost 70 percent in the past six months--caused by the increased demand for ethanol biofuel has come much sooner than many agriculture economists had expected. According to the United States Department of Agriculture, this year the country is going to use 18 to 20 percent of its total corn crop for the production of ethanol, and by next year that will jump to 25 percent. And that increase, says Marshall Martin, an agriculture economist at Purdue University, "is the main driver behind the price increase for corn." The jump in corn prices is already affecting the cost of food. The most notable example: in Mexico, which gets much of its corn from the United States, the price of corn tortillas has doubled in the past year, according to press reports, setting off large protest marches in Mexico City. It's almost certain that most of the rise in corn prices is due to the U.S. ethanol policy, says David Victor, director of the Program on Energy and Sustainable Development at Stanford University. The rising food costs fueled by ethanol demand are also affecting U.S. consumers. "All things that use corn are going to have higher prices and higher cost, to some extent, that will be passed on to consumers," says Wally Tyner, professor of agriculture economics at Purdue University. The impact of this is being felt first in animal feed, particularly poultry and pork. Poultry feed is about two-thirds corn; as a result, the cost to produce poultry--both meat and eggs--has already risen about 15 percent due to corn prices, says Tyner. Also expect corn syrup--used in soft drinks--to get more expensive, he says. The situation will only get worse, says David Pimentel, a professor in the department of entomology at Cornell University. "We have over a hundred different ethanol plants under construction now, so the situation is going to get desperate," he says. Adding to the worries about corn-related food prices is President Bush's ambitious goal, announced in his last State of the Union address, that the United States will produce 35 billion gallons of ethanol by 2017. Still, some suggest that the overheated ethanol market could soon cool down. "Politicians will see that, first of all, it is not helping our oil independence," says Pimentel. "It is increasing the price of food for people in the U.S., it is costing an enormous sum of money for everyone, and it is contributing to environmental problems. But I can imagine it is going to take another year or more before politicians realize they have a major disaster on their hands." |
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Comments
smithsomian on 02/13/2007 at 6:00 AM
16
anymoore on 02/13/2007 at 11:18 AM
3
invest333 on 02/14/2007 at 7:07 PM
1
bmn on 02/26/2007 at 8:43 AM
25
Boilerman on 06/20/2007 at 2:14 PM
3
This is not solely because of the demand for Ethanol.
Other reasons are due to the Increase in Cost of Crude Oil.
Most all of the Farmer’s Input Cost comes from Oil. His fertilizers come from the oil that we import (as well as the fuel for the farmer’s equipment), then it takes more fuel to harvest the corn seed, fuel to haul the harvested seed to the seed company, fuel to transport the seed to the farm for planting, more fuel to plant the corn seed, more fuel to power the irrigation equipment, more fuel to harvest the corn, more fuel to dry the corn and then more fuel to deliver the corn to the end user.
I think this is a false statement!
Farmers will be planting more corn and even if the corn usage for ethanol is up, we still have the DDG’s for feed which is better for the animal due to the starch having been removed for the ethanol.
It not like we are losing the corn to ethanol and the corn used in the ethanol process is not used for human consumption.
I do not agree, the thing that is pushing the cost of food up is what we are paying for oil.
I suppose the cost of automobile & truck fuel is going up because of ethanol.
All food cost will go up due to the higher cost of oil.
Isn’t it about time that the farmer got a fair price for his commodity?
The next thing that we will be hearing is that we all will freeze during the winter because the ethanol plants are using up the natural gas that a lot of us heat our homes with.
Another thing that is being over looked is the fact that we have only been working on this massive ethanol production for a few years and in that time there have been drastic gains made in the genetics of the seed enabling us to get more ethanol per bushel and more bushels per acre and we now have corn that will grow in areas of the country that 5 years ago could not grow corn.
concernedmom on 03/15/2008 at 3:49 PM
1
alternativee.org on 02/13/2007 at 6:09 AM
9
www.alternativee.org
fyaeger on 02/14/2007 at 11:29 PM
1
I think I read that corn-based ethanol plants are not convertible (or at least it is very very costly) to use cellulose.
If true, I am not sure spending my money to build those plants is the best use of my money.
Personally, I'd rather see a good portion of that money go toward changing the US's societal infrastructure to life in a way that conserves energy without forcing us to sacrifice richness of living.
molecularfarming on 02/15/2007 at 4:47 AM
2
paintehandarm on 02/13/2007 at 7:02 AM
3
SumoPixel on 02/13/2007 at 10:54 AM
4
Demand for corn and soybeans is no longer limited by how much we can eat and is now essentially infinite. Consequently there is no longer any "surplus" grain. The ability of goverments to set artificially low grain prices by encouraging overproduction through grain subsidies is history.
This is a great thing for food exporting countries such as the United States. The government can stop subsidizing crops and the higher value of grain exports will help offset the cost of oil imports.
Of course, this may result in a Malthusian disaster for many of the world's poorest people who can no longer afford to buy their food. Maybe we've hit the wall on population growth. Is this what will save humanity from itself?
P.S. If you're truly worried about the starving people of the world, buy some food and donate it to them. This will cause the price of food to rise so that it no longer makes economic sense to burn it.
Alternatively, you can make the farmer pay the price for your guilty concience by making it illegal to convert grain to ethanol. It always feels good when someone else foots the bill for what you want doesn't it!
markko on 02/13/2007 at 3:00 PM
1
abcarterjr on 02/13/2007 at 4:09 PM
45
central america so that they can be farm hands
again and grow corn in their homeland.?
kitk on 02/14/2007 at 2:04 AM
50
abcarterjr on 02/24/2007 at 8:19 PM
45
central america & grow Algae.
Ron Steenblik on 02/13/2007 at 5:40 PM
3
Yes, the corn market has been badly distorted over decades by farm subsidies. But the answer is hardly to create a new, potentially even larger subsidy system to deal with it.
The market for coal for ethanol is no longer being driven by high gasoline prices. Now that those prices have dropped from their highs of a few months ago, and corn prices have risen sharply, ethanol producers are in a squeeze. It is only thanks to government mandates, and generous subsidies, that they can remain in business.
Any "savings" to the government from reduced price supports for corn (since when did farm subsidies become entitlements?) will be swamped by the cost to the U.S. Treasury of subsidizing ethanol.
Consider the cost to the Treasury if President Bush's proposed target "alternative fuels standard" for 2017 of 35 billion gallons a year were to be met by ethanol or biodiesel. Consumption of biofuels in recent years has been growing at an average compound growth rate of 25% per annum. Around 7 billion gallons of ethanol and biodiesel will be consumed in the United States in 2007. Assume it will grow linearly by 2.8 billion gallons a year until consumption reaches the mandated 35 billion gallons in 2017. (This is a conservative assumption: with consumption growing at 25% per year, the target level would be reached by 2015.) The total ethanol consumed over those 11 years would be 231 billion gallons. Multiplying this by the $0.51 per gallon tax credit (the lower of the ethanol and biodiesel tax credits) yields $118,000,000,000 ($118 billion).
That would be the <i>minimum</i> subsidy over the coming 11-year period, assuming all of the 35 billion gallon target for 2017 will be met by ethanol (and that the volumetric ethanol tax credit continues to be extended). In this simplified example, a range of other government subsidies have been ignored. These include grants or loans for construction of plants, the $0.10 per gallon small producers’ credit, and the extra cost born by consumers as a result of maintaining the $0.54 per gallon “secondary” tariff on ethanol, which creates a barrier to imports from low-cost producers, notably Brazil. Also not counted in the $118 billion figure are state-level incentives, many of which are in the neighborhood of $0.20 per gallon, and some of which range as high as $0.50 per gallon. Rules vary in terms of how much production gets each state tax break, but including state supports as well on the gallons produced between now and 2017 would likely add tens of billions of dollars of subsidies to our total.
To produce all that ethanol would consume scarce resources -- a lot of resources, particularly water and energy. If the public policy concern is to provide an extra reward for the labor of farmers (who in the United States choose that vocation voluntarily), then it would be far more efficient (and less costly) to give them a fixed annual payment.
For more on this debate, see our website: www.globalsubsidies.org and the latest issue of <i>Subsidy Watch</i>.
SumoPixel on 02/13/2007 at 10:50 PM
4
In comparison, the ethanol subsidy that you claim sounds like a fantastic bargain. Investing in ethanol will help us avoid future wars, it creates jobs here in the United States, and it helps us develop technology that we can sell to the rest of the world.
If you have any doubts over whether the Iraq war was fought to protect our oil interest, think of how seldom we've fought major wars in Africa to remove evil dictators or to bring democracy to the African people.
Ron Steenblik on 02/14/2007 at 2:15 AM
3
Why? Because these approaches would rank very low in terms of cost-effectiveness. Numerous studies, including our own, show that the cost per gallon of oil avoided through subsidizing corn-based ethanol is very high -- at least $2.00. (Petroleum products are used to power farm machinery, don't forget; and that number doesn't count the petroleum products used to distribute the ethanol by truck or train over long distances because it can't be transported by current pipelines.) At best one tonne of CO2-equivalent emissions are avoided for every $500 of subsidy, compared with a price for a CO2-equivalent offset on the open market of less than $20. Researchers in Oregon recently estimated that the cost of avoiding a tonne of CO2-equivalent emissions through production of corn-based ethanol in that state would be $10,700.
At those kinds of costs, there are many, many other policies that surpass subsidizing corn-based ethanol in terms of cost-effectiveness, and without contributing to soil erosion, loss of wildlife habitat, and the expansion of the "Dead Zone" in the Gulf of Mexico.
Even ignorring the energy that goes into making the fuel, 35 billion gallons a year of ethanol would only displace 15% of U.S. gasoline demand.
Subsidizing ethanol does nothing to alter the basic problem: too much demand. By contrast, a gallon of gasoline consumption avoided through conservation is a gallon of gasoline avoided.
And as for wars: they have been fought as often and as fiercely over access to food (or its production factor, land) as they have over access to energy. Why were France and the Ukraine so coveted by Nazi Germany?
chanokin on 02/13/2007 at 11:07 PM
2
Why ethanol? And more importantly, why get it from corn when it's highly unefficient?
If you're truly thinking in protecting/saving the enviroment I think that saturation of corn fields around the globe is very damaging also. After filling up the atmosphere with greenhouse gases are we really going to remove plants that take care of some of those nasty emissions?
And what about filling up the land with pesticides and fertilizers? Plus there are a lot of cows, just get the methane from their feces ;)
wlmiskol on 02/14/2007 at 12:19 PM
1
The forecast for the final stages of earth warming is truly dismal. The oceans will warm sufficiently to release methane concentrations deposited as hydrides in the ocean bottoms. (see http://www.hydrogen.co.uk/h2_now/journal/articles/3_Methane.htm). As methane is twenty times more potent than carbon dioxide volume for volume the atmospheric warming will accelerate. As the oceans warm the ability of water to retain oxygen will decrease until only anaerobic bacteria can survive. These secrete hydrogen sulfide, a gas which is poisonous to animal life. A discovery that this was the major cause of extinctions in the past has only been recently made. ( see http://www.terradaily.com/news/early-earth-05b.html)
Therefore it is most urgent that carbon dioxide increase in the atmosphere be curtailed and if possible decreased. This will be most difficult as third world countries have discovered that wealth can be created by the acquisition and implementation of knowledge and are therefor adding carbon dioxide pollution more rapidly to the atmosphere than the developed world can reduce theirs. This is graphically demonstrated by China equaling the US in the number of cars owned by private citizens. This will occur in the next few years.
Cost will not be a consideration in this battle as survival of all is at stake. The only alternative to reducing carbon dioxide is using existing technology by the use of plant material as fuel. The carbon dioxide is kept constant as addition to that in the atmosphere is not made. It is recycled. This is not quite true as some is sequestered in the soil and will in time reduce that available in the air. In addition photovoltaics, waterpower, wind power and power from the oceans (available from the temperature differences between surface and bottom water) will also be available to decrease the use of mineral hydrocarbons and help start the major alternative. Note that energy in all these technologies comes from the sun.
The argument against this is that diversion of agricultural land to fuel production will decrease food supplies. Yet there are thousands of square miles of desert and semi arid regions which can be converted to agricultural land. The only reason for not developing this resource is lack of water, fertility and a reason for development.
The reason exists, raise vegetable material for fuel. The irony is that the water is also available. The problem is that the water now going into oceans from rivers has been regarded as waste. Using this water from the salt – fresh water interface will be a monumental task and will not affect the upstream use of river water.
There are several means of doing this and the first consideration is the means of transportation. Because of the low monetary value of the cargo, fresh water, extremely large vessels will be required. Fortunately water is not classified as a polluting cargo as is crude oil so double hulls are not a requirement. Considering the size of the proposed vessel (probably larger than an aircraft carrier) the effect of large wave action will increase stresses on the hull which translates into more cost. A study of alternatives is necessary.
A submarine which carries the fresh water in rubberized containers within compartments may provide better economics. The reason for this is that the submarine can travel below the effect of wave action and since the outside of the water containers can be kept open to the ocean, pressure on the hull and bladder is eliminated. Crew and engine compartments have different considerations. This may translate into much better economics.
In both proposals the vessels would probably have to the nuclear powered because of the carbon dioxide issue and nuclear engines can be readily seized to what is required. As a safety measure, the crew and engine compartments in the submarine can be made detachable and floatable.
Other areas of special research required are:
a. means of controlling water at the mouths of rivers to enable easy loading
b. identification of areas which can be most economically developed.
c. designs for loading and unloading
d. designs for holding ponds in which undesirable plant and animal life can be
eliminated
e. other unforeseen problems
Note that none of this is new technology.
The total project envisioned is truly gargantuan and involves the following:
terra forming in some instances,
building of canals,
pipelines,
pumping stations,
roads,
power stations,
transmission and distribution systems,
increase of fertility by application of loess, (available in large deposits in America & Asia)
towns with all the associated amenities
Again this is all old technology and it should be emphasized that arid and semiarid areas are the ideal location for power towers such as are being developed by the Australians. These can be constructed for use in the initial stages and may prove useful thereafter.
Another benefit is the length of time this enterprise will take. Work for centuries is foreseen.
The social effects are equally grand and positive. It is doubtful that in some areas the people required for the construction stage and personnel for the permanent jobs will be available from the country concerned. Immigration such as occurred to the America’s will be the most suitable option. Because of modern communication maintaining contacts to the source country will be assured. Understanding between multiple countries and cultures can develop and the most basic institution of a civilized world, the family will be strengthened.
A major disease of the world, supernationalism, will be dampened. Successive generations will intermarry. This is a fact in the Americas and in most of the world if history and the consequences of wars are reviewed.
It is unkown if one country has the resources to undertake such a project within its boundaries and an international effort may be necessary. Diversion of funds from military objectives is certainly an alternative.
We may yet achieve the most elusive goal of a civilized world.
Peace be with all of us,
W. L. Miskolzie
molecularfarming on 02/15/2007 at 4:43 AM
2
Ron Steenblik on 02/15/2007 at 10:09 AM
3
Of course, more could come from sugar-cane grown in the tropics -- a highly efficient feedstock and process. But chances of Congress letting the $0.54/gallon tariff on imported ethanol expire as scheduled on 1 January 2009 are probably as likely as a snowstorm in July.
.
Rbird on 05/03/2007 at 11:30 PM
1
Solar John on 03/08/2007 at 2:44 PM
12
notusa on 04/16/2007 at 9:47 AM
1
dear god.
Solar John on 05/30/2007 at 10:00 AM
12
srcarmic on 05/30/2007 at 7:42 PM
1
As for everyone else....I understand that your skeptical of alternative fuels and what impact they may have on your life. I think the more concerning issue is what will happen if we don't look into other resources of Energy.
We can't keep depleting natural resources around the world and not expect an impact. People are trying to come up with solutions and I agree there are two sides to every story. Whether it's government regulations or people actually want to try something different than wars. Don't knock people for trying....this industry changes everyday because now there is an actual demand and money is being invested to come up with new technology. There are going to be good and bad decisions made but somebody has to have the balls to make them and not just poke holes in every theory. Obviously the model of obtaining foreign oil comes at a cost unimaginable from people who don't have family and friends in Iraq.
Solar John on 05/31/2007 at 12:26 PM
12