Exploding demand for ethanol could inflate the price of food and threaten the world's hungry

foodfuel.jpg Credit: Photo Works, Inc.

In the U.S., corn usually means Iowa. In 2005, the state produced more than 2 billion bushels of corn. That’s nearly 20 percent of the national crop and more than any other state—and many other countries—managed to produce.

But the nation’s leading corn producer is increasingly trying to transform its cash crop into liquid gold: ethanol. By the start of this year, Iowa had produced more than a billion gallons of ethanol, and its production capacity is slated to expand by hundreds of millions of gallons. The state is turning corn into fuel so fast that by the end of next year, Iowa will actually suffer a crop shortage.

“Sometime by the end of 2007, Iowa’s going to need to import corn,” said Dan Basse, president of AgResource, an agricultural economics firm in Chicago.

Ethanol is produced by the fermentation and distillation of starches and sugars in plants; in the U.S., it is produced primarily from corn. According to its fans, ethanol is a miracle biofuel that will help save drivers dollars at the pump, stave off global warming, and end America’s dependence on Middle Eastern oil.

Now, however, a vocal group is beginning to warn that the escalating demand for the biofuel will soon run afoul of the limited supply of corn, causing a 21st century food fight with global ramifications.

“There are whole new companies being created just to build ethanol distilleries in this country,” said Lester Brown, president of the Earth Policy Institute, an environmental research organization. “I don’t think anyone’s adding up the amount of corn it’s going to take to run the distilleries that are being planned.”

The amount of ethanol produced—and the amount of U.S. corn used in manufacturing—has increased dramatically in the last five years. In 2005, the U.S. produced nearly four billion gallons of ethanol—more than twice the amount produced in 2000. The continuation of this growth is federally mandated: The 2005 Energy Policy Act calls for a near doubling of that figure by 2012.

Ethanol has many advocates: Farmers love it as a steady and growing market for their corn. Big food processors, like Archer Daniels Midland and Monsanto, are behind it because it’s much more profitable than turning corn into livestock feed or sweeteners. Businesses and investors back it because a $100 million investment in an ethanol distillery can be made back in just one year. Overall, there’s simply much more money to be made in ethanol than in feed, which is currently the largest consumer of corn in the U.S.

“The energy market just dwarfs the agricultural market in terms of value,” said Wallace Tyner, an agricultural economist at Purdue University. “If Exxon chose to, they could take less than one year’s profit and buy the entire corn crop.”

In fact, the energy market is so large—and the hunger for biofuel so insatiable—that the USDA predicts the nation’s planted corn acreage will grow as ethanol production drives up demand.

The government is hoping that improvements in genetic engineering will help increase corn yields.

“But it’s still not enough,” Basse said. “Someone’s going to get squeezed.”

In the U.S., corn is primarily used for feeding livestock, the cost of which is substantial: 40 percent of the expense of poultry production comes from feed. If an increasing percentage of the U.S. corn crop winds up in ethanol distilleries, the price of the remaining corn will rise, forcing livestock producers to shell out more money for feed.

“You start getting into this food fight between the livestock producer and the ethanol industry,” Basse said.

Initially, livestock producers will see their profit margins shrink. Those costs will eventually be borne by American consumers. If the price of feeding chickens doubles, for instance, poultry and egg prices will go up substantially. Additional, but smaller, price increases could be seen in grain-based foods, such as bread and breakfast cereal.

foodfuel2.jpg An ethanol tank sits in front of grain bins at an ethanol plant.  Credit: Paul Fries

Grain markets naturally go through price fluctuations, largely as a result of unpredictable shifts in things like yearly weather patterns. A strong ethanol market would probably reduce these fluctuations and, according to Cutler Cleveland, director of Boston University’s Center for Energy and the Environment, “put some upward pressure on the price of corn and corn products.”

But Cleveland is skeptical the changes will be significant.

“I find it hard to believe that the price of Corn Flakes is going to all of a sudden go to $6 a box because we switched to ethanol,” he said.

Indeed, some believe that price increases in corn products may be what eventually limits the expansion of the ethanol industry. Purdue’s Tyner thinks Congress would intervene if commodity prices got too high, possibly eliminating the government’s current ethanol subsidies in order to stabilize the increase.

Tyner notes that even before that happens, the effects of an increase in corn prices will be felt abroad. Within the next few years, he predicts, as the demand for ethanol and corn grows, U.S. corn exports will decline. This year, the USDA projected that the growing ethanol industry may divert U.S. corn from the export market.

If it does, the decline will come at a time when the number of the world’s hungry is growing. Worldwide production of grain per capita has been on a continuous slide for the last 21 years, said David Pimentel, a life scientist at Cornell University.

“We have a serious shortage of food, and it seems a bit ridiculous to me that we’re taking food away for ethanol,” Pimentel said. “We shouldn’t be using food to burn.”

Importers will have to look to other countries, but relief may be hard to find. China, the world’s second largest producer of corn, is also one of the largest exporters of the crop. But, according to a 2004 USDA report, the nation’s growing population and limited production capacity are expected to soon make it a net importer. Despite the potential problems, China announced a substantial new plan to increase its own ethanol production last month.

Indeed, if the interest in ethanol is international, so, too, are the effects.

Though Americans might be able to weather increases in food prices, much of the world’s poor will not, said Brown of the Earth Policy Institute. For the world’s two billion poorest people, he said, even a modest increase in the price of corn-based products—the increases that could result from declining U.S. exports—may make such products unaffordable, potentially causing food shortages, starvation, and economic instability.

“If you used every kernel of corn for ethanol, you would produce 12.5 percent of our gasoline supply,” Tyner said.

The use of corn to produce cheaper alternatives to gasoline sets up a competition between, Brown said, “the 800 million of us who own automobiles and the 2 billion who want to survive.

“We’ve never had a social issue like this at the global level before.”

But some think Brown’s worries are overblown.

“Obviously everyone in the industry realizes that there is a limit for how much ethanol can be produced from corn before it starts having negative effects on other markets,” said Matt Hartwig, spokesman for the Renewable Fuels Association, the American ethanol trade association. “But there still is a lot of room for growth.”

Even with rapid growth, however, corn-based ethanol can never be the only solution to America’s energy woes. 

“If you used every kernel of corn for ethanol, you would produce 12.5 percent of our gasoline supply,” Tyner said.

That’s why Tyner and others agree that the U.S. needs to look beyond corn-based ethanol for solutions to the oil crisis—to alternatives like cellulosic ethanol.

Currently, ethanol is made primarily from corn starch found in the kernels that we eat. Cellulosic technology will make it possible to turn other plant parts—such as corn stalks, rice straw, wood chips, or grasses—into fuel.

Though the process for mass-producing cellulosic fuels is not yet economical, many believe such energy sources will come to play an increasingly large role in the biofuel industry. Still-nascent technologies aside, the best bet for alternative energy may be for the U.S. to hedge its bets by exploiting more than just biomass.

“Biofuels are never going to be a replacement for oil,” Tyner said. “The key in the future is going to be to go to a greater diversity of fuels.”

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Originally published August 29, 2006

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