Biofuel and Food-Price Inflation

Simple economics.

http://www.earth-policy.org/Updates/2008/Update69.htm

[i]Why Ethanol Production Will Drive World Food Prices Even Higher in 2008

January 24, 2008

Lester R. Brown

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.

The world is facing the most severe food price inflation in history as grain and soybean prices climb to all-time highs. Wheat trading on the Chicago Board of Trade on December 17th breached the $10 per bushel level for the first time ever. In mid-January, corn was trading over $5 per bushel, close to its historic high. And on January 11th, soybeans traded at $13.42 per bushel, the highest price ever recorded. All these prices are double those of a year or two ago.

As a result, prices of food products made directly from these commodities such as bread, pasta, and tortillas, and those made indirectly, such 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.

In industrial countries, the higher processing and marketing share of food costs has softened the blow, but even so, prices of food staples are climbing. 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.

World grain prices have increased dramatically on three occasions since World War II, each time as a result of weather-reduced harvests. But now it is a matter of demand 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 at www.earthpolicy.org/Updates/2008/Update69_data.htm.)

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.

A University of Illinois economics team calculates that with oil at $50 a barrel, it is profitable�??with the ethanol subsidy of 51¢ a gallon (equal to $1.43 per bushel of corn)�??to convert corn into ethanol as long as the price is below $4 a bushel. But with oil at $100 a barrel, distillers can pay more than $7 a bushel for corn and still break even. If oil climbs to $140, distillers can pay $10 a bushel for corn�??double the early 2008 price of $5 per bushel.

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.

Projections by Professors C. Ford Runge and Benjamin Senauer of the University of Minnesota four years ago showed the number of hungry and malnourished people decreasing from over 800 million to 625 million by 2025. But in early 2007 their update of these projections, taking into account the biofuel effect on world food prices, showed the number of hungry people climbing to 1.2 billion by 2025. That climb is already under way.

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. The WFP reports that 18,000 children are dying each day from hunger and related illnesses.

As grain prices climb, a politics of food scarcity is emerging as exporting countries restrict exports to limit the rise in domestic food prices. At the end of January, Russia�??one of the top five wheat exporters�??will impose a 40-percent export tax on wheat, effectively banning exports. Argentina, another leading wheat exporter, closed export registrations for wheat indefinitely in early December until it could assess the condition of the new crop. And Viet Nam, the number two rice exporter after Thailand, has banned rice exports for several months and will likely not lift this ban until the new crop comes to market.

Rising food prices are translating into social unrest. It began in early 2007 with tortilla demonstrations in Mexico. Then came pasta protests in Italy. More recently, rising bread prices in Pakistan have become a source of unrest. In Jakarta, 10,000 Indonesians gathered in front of the presidential palace on January 14th this year to protest the doubling of soybean prices that has raised the price of tempeh, the national soy-based protein staple. When a supermarket in Chongqing, China, where cooking oil prices have soared, offered this oil at a reduced price, the resulting stampede when doors opened killed three people and injured 31.

As economic stresses translate into political stresses, the number of failing states, such as Afghanistan, Somalia, Sudan, the Democratic Republic of the Congo, and Haiti, which was already increasing before the rise in food prices began, could increase even faster.

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.[/i]

Here’s another good article from last summer:

Thanks hippies and pandering politicians…

[quote]BostonBarrister wrote:
Here’s another good article from last summer:

Thanks hippies and pandering politicians…[/quote]

The republicans are every bit as guilty as the dems on this one, and McCain isn’t going to do anything to help either.

Politicians are idiots. I’ve not heard a single scientist suggest that it’s a good idea to convert a large portion of our agriculture yield to ethanol production and all that I’ve spoken to on the matter have told me that it’s a bad idea.

[quote]
BostonBarrister wrote:
Here’s another good article from last summer:

Thanks hippies and pandering politicians…

tedro wrote:
The republicans are every bit as guilty as the dems on this one, and McCain isn’t going to do anything to help either.[/quote]

Oh definitely - Republicans in the midwest love their farm pork, and Bush was trying to get the hippies to like him a little more (not that it worked) - though hopefully McCain will do what he can - he engaged in a bit of pandering in Iowa this go-round, but his position for the previous 20 years has been anti-ethanol subsidies.

I hope people start confronting that other messiah, Al Gore, on this stuff: http://www.nysun.com/news/food-crisis-eclipsing-climate-change (though Gore did talk about moving to cellulose ethanol).

Now that government subsidizes ethanol and corn farmers get higher prices due to increased demand do you think the corn/ethanol lobby is going to let government stop funding it?

[quote]BostonBarrister wrote:
Oh definitely - Republicans in the midwest love their farm pork, and Bush was trying to get the hippies to like him a little more (not that it worked) - though hopefully McCain will do what he can - he engaged in a bit of pandering in Iowa this go-round, but his position for the previous 20 years has been anti-ethanol subsidies.
[/quote]

So what is McCain’s official stance on ethanol these days?

Part of me wants to think that he actually may help things by ending subsidies. The other part worries that he will stifle the oil and coal industries so much that ethanol will remain in the picture for a long time.

On one hand he takes the conservative approach by not giving subsidies or tax breaks to energy producers, then at the same time he wants to take a very liberal approach and put excessive regulations on emissions and still oppose drilling in Alaska. He has been a long time supporter of nuclear energy, which is a good thing, but we aren’t going to power the whole country with it.

So what’s it going to be? Will he continue the populist trend, or will he man up and actually take measures that will help the energy crisis?

[quote]
BostonBarrister wrote:
Oh definitely - Republicans in the midwest love their farm pork, and Bush was trying to get the hippies to like him a little more (not that it worked) - though hopefully McCain will do what he can - he engaged in a bit of pandering in Iowa this go-round, but his position for the previous 20 years has been anti-ethanol subsidies.

tedro wrote:
So what is McCain’s official stance on ethanol these days?[/quote]

Unsurprisingly, I can’t find any mention of it on his campaign home page. But I’m encouraged by his recent refusal to pander on free trade in Youngstown, OH - I think he will stick with his longstanding pre-Iowa 2008 anti-ethanol position.

[quote]
tedro wrote:
Part of me wants to think that he actually may help things by ending subsidies. The other part worries that he will stifle the oil and coal industries so much that ethanol will remain in the picture for a long time.

On one hand he takes the conservative approach by not giving subsidies or tax breaks to energy producers, then at the same time he wants to take a very liberal approach and put excessive regulations on emissions and still oppose drilling in Alaska. He has been a long time supporter of nuclear energy, which is a good thing, but we aren’t going to power the whole country with it.

So what’s it going to be? Will he continue the populist trend, or will he man up and actually take measures that will help the energy crisis?[/quote]

I think he’ll use the populist food-price argument as to the focus of why he’s against ethanol. Hopefully his economic team will talk sense into him about carbon taxes or caps (but at any rate, where ever he comes out will be better than where ever Hillary or Obama are).

[quote]BostonBarrister wrote:
Unsurprisingly, I can’t find any mention of it on his campaign home page. But I’m encouraged by his recent refusal to pander on free trade in Youngstown, OH - I think he will stick with his longstanding pre-Iowa 2008 anti-ethanol position.
[/quote]

This is the best I could find, it does give a bit of insight on his position:

http://www.johnmccain.com/Informing/News/Speeches/05B932CD-B2E4-4863-A22F-6B84C893121A.htm

[quote]BostonBarrister wrote:
Thanks hippies and pandering politicians…[/quote]

More like the Agri-business lobby looking to increase their corn and grain subsidies.

In terms of biofuel sources, algae is the only reasonable way to go.

ElbowStrike

It’s just growing pains it will ease.
I think ethanol is a great idea, myself. The main reason why is that the car I have outside, with minor modifications, can run on it. It’s a pretty selfish thing, but I am a car nut. I love cars and I have a love affair with the internal combustion engine. I won’t let that go easily.

Are gas stations starting to put 10% ethanol in every gallon of gas where you guys live? That shit pisses me off because putting ethanol in gas for a non-ethanol engine just fucks it up and rips me off of more money.

I live in the Kansas City area and when I visited family in Denver recently I noticed all the soy bean fields were gone and now grow corn. The sad thing is that for decades before this a lot of farmers would let wheat and corn rot in gigantic silos to keep prices up and wouldn’t even donate to the poor.

Ethanol is such a piece of shit fuel wtf don’t they just focus on hybrids until solar power or hydrogen cars are perfected. Plus how many people actually have cars that are designed to run on ethanol?

[quote]GhorigTheBeefy wrote:
Are gas stations starting to put 10% ethanol in every gallon of gas where you guys live? That shit pisses me off because putting ethanol in gas for a non-ethanol engine just fucks it up and rips me off of more money.
…[/quote]

I can’t get away from it. The price is higher and the mileage is lower.

Even Jim Cramer says that these ethanol shenanigans are only about money and votes, and not about energy like everyone believes.

This “go green” shit really pisses me off.

[quote]skaz05 wrote:
Even Jim Cramer says that these ethanol shenanigans are only about money and votes, and not about energy like everyone believes.

This “go green” shit really pisses me off.[/quote]

Most people in the know don’t consider ethanol from commercial agriculture to be green in the first place. First there’s the energy it takes to grow the plant then there’s the energy it takes to process it into ethanol. Overall it takes more energy to produce the ethanol than we get out of burning it.

There are good reasons and better way to “go green” though.

[quote]Wimpy wrote:
Overall it takes more energy to produce the ethanol than we get out of burning it. [/quote]

I know nothing about the process, but this claim defies common sense. Why would we continue doing it if the expenditure outweighs the benefits we reap?

You wouldn’t happen to be factoring in the sun’s energy, now would you?

[quote]lixy wrote:
Wimpy wrote:
Overall it takes more energy to produce the ethanol than we get out of burning it.

I know nothing about the process, but this claim defies common sense. Why would we continue doing it if the expenditure outweighs the benefits we reap?

You wouldn’t happen to be factoring in the sun’s energy, now would you?[/quote]

http://healthandenergy.com/ethanol.htm

There are a few things to consider. First is that there’s a political agenda propelling the use of ethanol.

Also, a typical harvest is usually no more than half of the genetic potential of what was planted (some seeds simply won’t germinate or will die young, others will die from disease, etc). So energy was invested into plants (plowing, etc) that will not produce fruit.

Also one must consider irrigation. A single corn plant requires around 100 gallons of water in a growing season. Most farms have water pumped in to irrigate their fields.

Of course, from what I understand manufacturing processes are always improving so it may be better now than what it was.

The problem is the stupid American war on drugs. They have the whole f’n country believing HEMP is a drug and not the answer to their problem. Any retard that comes up with the idea to use a food source for fuel should be taken out back and put out of our misery.

I don’t really mind that the US government brain washes it’s citizens. I do really hate it when they stick their f’n faces in the business of other countries. Advising them not to harvest HEMP.

Funny thing is they have you all believing you live in a free country. Free to do as you’re told that is. Well there is no cure for stupid!!

God dammit I’m happy to see everyone here anti-ethanol. How the fuck can they get away with it?

There are 2 pros that I can tell, and I can attribute one to my freshman year environmental science professor:

  1. It is “cleaner” burning, though it still produces carbon dioxide, so if you believe in Anthropogenic Global Warming, it still contributes.
  2. It provides jobs to Americans to produce it

But other than that, it’s hotter burning, less mileage, fucks your shit up if it’s not made for it, more EXPENSIVE, and it appears that it will increase food prices… compounded by the fact that poverty and malnutrition exists in our very own backyard, you gotta wonder WHAT THE FUCK.

I’m no economist, but lets take the OP as gospel for the sake of discussion.

This really does become a interdisciplinary problem.

What happens when Pedro and Jose can no longer afford to buy corn tortillas for his family? Gotta find new trabajos! Al norte!