One theory that has been widely discussed in recent weeks is that the nation’s growing demand for biofuels and the crops needed to produce them is the real culprit behind higher food prices, both at home and abroad. Yet the evidence that we have seen. . .does not support this.

It’s true that higher demand for corn for ethanol and soybeans for biodiesel has led to higher prices for those crops over the past couple of years. But we do not have a one on one relationship between higher prices for those commodities and what consumers are paying for foods at the retail level. There are many factors at work. . .

So just how much is ethanol contributing to global food prices? According to Schafer:

On the international level, the President’s Council of Economic Advisors estimates that only 3 percent of the more than 40 percent increase we have seen in world food prices this year is due to the increased demand on corn for ethanol.

Their reasoning includes things I’ve written about before including oil prices, economic and dietary expansion in India and China, droughts affecting wheat crops, etc.

For more, read the USDA’s biofuel briefing in its entirety or watch the video:

USDA video.

Biofuels are increasingly lumped into a single category of environmentally apocalyptic dead-end solutions. As the food vs. fuel debate rages on, it’s no wonder that the general public believes this.

But not all biofuels are created equal, as the chart above illustrates (click the image to see full size). It’s one of the best depictions I’ve seen of how each biofuel feedstock has completely different impacts on overall greenhouse gas emissions, water and pesticide use, and the energy required to produce the fuel. (Click on the chart for the full image)

The chart was created jointly by faculty members from University of Washington and The Nature Conservancy and published in the Seattle P-I (see the article Bio-debatable: Food vs. fuel).

As I reported last week, Europe’s EPA advised suspending the EU’s biofuel targets until a comprehensive environmental analysis could be completed. Barbara Helfferich, spokeswoman for EU Environment Commissioner Stavros Dimas, said no way is that going to happen:

“You can’t change a political objective without risking a debate on all the other objectives,” meaning that changing biofuels targets could lead to questioning the entire climate change package.

European Commission agriculture spokesman Michael Mann said the EU isn’t really concerned about using food-based biofuels to meet their targets. Instead, they’re betting on increasing crop yields and the availability of more arable land, both from new member states and a decrease in compulsory “set-aside” (fallow cropland).

Mann even went so far as to say the US is primarily at fault for increasing food prices.

Whoever or whatever is at fault (see “Perfect Storm” Inflating Food Prices Worldwide), the increasing cost of food has already sparked violent protests in Cameroon, Egypt, Ethiopia, Haiti, Indonesia, Ivory Coast, Madagascar, Mauritania, the Philippines and other countries. Troops have even been deployed in Pakistan and Thailand to guard against food seizure from fields and warehouses.

In the midst of a food crises, it doesn’t take a skeptic to doubt the EU’s ability to meet their biofuel targets without further impacting food prices.

For more information on the role biofuels are playing in increasing food costs, see the following posts:

“Perfect Storm” Inflating Food Prices Worldwide
Biodiesel Myth (Or Fact?) #23: Biodiesel is Raising Food Prices
Europe’s EPA Advises Suspending Biofuel Targets
2015: 30% of US Corn Harvest Will Be Gasoline
Which is Worse: Exporting $1 Billion Per Week or Growing Fuel?

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Zoellick called it a “perfect storm of things coming together…” and listed 7 different issues contributing to the increasing cost of food, which led to rioting in Haiti and Egypt last week, along with a general strike in Burkina Faso:

1. High energy prices (which affects production and shipping costs).
2. Increase in demand from developing countries: “going from 1 meal a day to 2 meals a day” leads to an increase in the amount of food needed.
3. More meat in diets in developing countries.
4. Increased production of biofuels.
5. Droughts in important growing regions, including Australia and Europe.
6. Reduced food stocks.
7. Commodities trading/futures trading: food being used as a financial instrument.

Zoellick underscored that none of these issues was solely responsible for increasing food prices, but NPR’s host Steve Inskeep pressed Zoellick on how much biofuels were contributing.

He noted that a recent report released by the World Bank seemed to indicate that biofuels were the primary issue, but Zoellick maintained that it wasn’t that simple. Rather, the “combinations of events have led to an emergency situation.” But he also said:

“Biofuels is [sic] no doubt a significant contributor. It is clearly the case that programs in Europe and the United States that have increased biofuel production have contributed to the added demand for food.”

Listen to the Morning Addition radio broadcast (only 5 minutes): World Bank Chief: Biofuels Boosting Food Prices, or see last week’s post, Biodiesel Myth (Or Fact?) #23: Biodiesel is Raising Food Prices.

Related Posts:

Europe’s EPA Advises Suspending Biofuel Targets
Biodiesel Mythbuster 2.0: Twenty-Two Biodiesel Myths Dispelled
2015: 30% of US Corn Harvest Will Be Gasoline
Which is Worse: Exporting $1 Billion Per Week or Growing Fuel?

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Increased world demand for grains and vegetable oils due to population growth (esp. in China and India), the weak dollar, agricultural production problems around the world, and $100/barrel oil are some of the driving factors accounting for increasing food prices.

After covering 22 of the most popular myths about biodiesel, I realized I’d only given lip service to a major issue: increasing food prices. In Myth #2, I mentioned that the goal of biodiesel production is to move away from food-based feedstocks.

But until that happens, the question remains: if I use biodiesel made from soybeans right now, am I contributing to the larger problem of increasing commodity prices and starving poor people?

Quick Facts:

• The United States is the world’s largest producer and exporter of soybeans.
• Soybean prices approached a 33-year high last fall, while overall food prices had their biggest jump in 16 years (according to economists). Food inflation rose about 4% in 2007 compared to an annual average of 2.5%.
• World soybean consumption this year is expected to be up 13.2% over two years ago.
• Biodiesel production in the US accounted for 2.8 billion lbs. of soybean oil last year, which amounts to an estimated 20% of the total domestic consumption of soybean oil.
• Soybeans directly compete with corn for agricultural land. Soybean acreage is expected to decline over the next few years due to high demand for corn, which directly increases the price of soybeans.
• Biodiesel production in 2007 was estimated at 450 million gallons. Corn-based ethanol production is expected to exceed 10 billion gallons by 2009.

Taking this into account, it looks like both soy-based biodiesel and corn-based ethanol (even more so) are at least partly to blame for increasing food prices. But that’s not the whole story. Even corn-based ethanol, which is produced in volumes greatly exceeding biodiesel, may only be responsible for 0.2% - 0.3% of the total 4% increase in food prices over the last year.

According to Brent Searle, Special Assistant to the Director at the Oregon Department of Agriculture, food inflation as a whole can’t be pinned to a single source. Responding via email, Brent said that no single study has sorted out all the issues, but several studies have documented how much petroleum prices are affecting things. The 4-5% food price increase in 2007 has been attributed to:

• 0.2% - 0.3% due to ethanol use of corn
• 0.8% - 1% due to gasoline/fuel price increases
• 3.5 - 4 % due to other causes

Here’s an even more thorough list list of the factors affecting food prices (also received via email):

1. A growing middle class in Latin America and Asia that can afford more meat and milk, which has driven up demand for grain to feed cattle and hogs.
2. A drought in Australia in 2006 and 2007 reduced the supply of milk and wheat available for export.
3. Low worldwide wheat prices the past several years have led growers to plant less wheat; additionally, grain traders store less wheat today with “just in time” deliveries, and there are no current government incentives for farmers to store wheat on farm. All this has led to record low wheat stocks, causing wheat prices to soar.
4. Regional pests, diseases, freezes, droughts, floods and other natural disasters all impacted fresh fruits, vegetables, and other produce availability and price.
5. Increases in labor costs, as state and federal minimum wages ratchet up, from farm to processing and the restaurant, affect food prices. 40% of the retail food price is related to labor costs after food leaves the farm.
6. Rising fuel costs, over $100 per barrel, making it more expensive to grow, process, refrigerate, and transport food from the producers to stores and restaurants — impacts all aspects of the food chain.
7. Personal choices – for example, organic milk costs nearly double conventional milk; consumers are choosing to pay higher prices based on preferences.
8. Dollar decline — makes food imports more expensive at the store and creates greater demand for US ag exports. Approximately 30% of fruits and vegetables consumed in the US are imported. They are now more expensive.
9. Corporate profits — an excuse to hike prices. Kroger, 4th quarter 2007 sales up 10% and profits up 18%. Kroger stated it paid 3% more for products. “In our view, periods of moderate inflation is a positive for our business because inflation tends to improve sales.”– VP Rodney McMullen, Jan. 2008. Safeway, sales up 3%, profits up 12%.
10. Marginal impacts from Ethanol demand for corn (US) and sugarcane (Brazil).

So where does that leave us? This topic is worth more serious conversation and analysis than can be summed up in a single blog post. My gut is telling me that the most important factors affecting food prices are the price of oil and increasing worldwide food demand, but all of the factors above may play a role.

I would also wager that corn-based ethanol, which will require about 30% of the US corn harvest by 2015, is a much bigger culprit than soy-based biodiesel if either one is significantly contributing to rising food costs. If you’re worried about using retail biodiesel, talk to your supplier about the source of their oil, and do more research with the links below.

I’m sure you have an opinion about this. What do you think? (Let me just repeat that I am all in favor of non-food based biofuels, some of which were listed in the rest of the biodiesel mythbuster).

Posts Related to Increasing Food Costs:

• European Union Defends Biofuel Targets As Food Prices Soar
• “Perfect Storm” Inflating Food Prices Worldwide
• 2015: 30% of US Corn Harvest Will Be Gasoline

Sources:
USDA Economic Research Service: Soybean and Oil Crops Briefing Room, and
Ethanol Expansion in the United States How Will the Agricultural Sector Adjust?
Reuters (Aug. 8, 07): Cooking Oil to Further Fuel Global Food Inflation
ThePoultrySite.com (Mar. 18, 08): Weekly Outlook: Focus On Soybean Oil

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Special thanks to Brent Searle for providing this information.

Ethanol plants in the US are now pumping out approximately 21.4 million gallons of corn-based ethanol every day, which has already amounted to 1.9 billion gallons for the year.

The upshot of all this production is progress toward the ethanol quotas required by the new Renewable Fuels Standard, which mandates 15 billion gallons of ethanol be produced from corn in the US by 2015.

But check this out: the Renewable Fuels Association estimates that in 2015 it will take 1/3 of the total US corn harvest to meet those quotas. The estimation is based on producing 3 gallons of ethanol from one bushel of corn, and a total corn harvest of 15 billion bushels.

That’s a big increase in ethanol production: The US produced about 13 billion bushels of corn in 2007, but only produced about 6.4 billion gallons of ethanol. That means that a 16% increase in corn production will have to support a 234% increase in the amount of corn being turned into vehicle fuel.

If the food vs. fuel debate is hot now, just wait until 2015. What seems ludicrous about this situation is that we have better options going online already, like cellulosic ethanol and algae biofuel facilities. Let’s just hope they can start ramping up production before this really gets out of control.

Source: Green Car Congress (Apr. 6, 08) Report: US Ethanol Production up 37% in Q1

Related Posts:
World’s First Commercially Viable Cellulosic Ethanol Plant Online 2009
GMO Corn-Stover Eats Itself, Makes Ethanol Processing A Breeze
Which is Worse: Exporting $1 Billion Per Week or Growing Fuel?
Is Ethanol Production Fueling the Size of the Dead Zone?

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There’s no doubt that growing corn-based ethanol has some serious problems: the dead zone in the Gulf of Mexico, controversy over increasing food prices, and questionable energy return.

But how does the impact of ethanol production compare to not doing anything?

Last week, the Delta Farm Press picked up on a statement made by Texas oilman T. Boone Pickens. Pickens admitted that he has opposed ethanol in the past, but on the other hand couldn’t support exporting half a trillion dollars—something the US will do this year in order to satisfy its oil addiction. Pickens said (via Delta Farm Press):

“You take 10 years, and you have $5 trillion,” said Pickens. “That’s more than $1 billion a day. We can’t stand that.” (That $500 billion per year is not far from the record federal deficit of $552 billion in 2004.)

Acknowledging he didn’t think much of ethanol’s claims in the early years, he said he now supports increased production. “I’d rather have ethanol and recirculate the money in the country, than to have it go out the back door on us.” (Pickens is investing $10 billion in wind energy.)

While corn-based ethanol is far from perfect, injecting some of that export money back into the US economy might not be such a bad idea. And even if it’s only slightly better than using gasoline in terms of energy return and pollution, it’s still slightly better. A lot of puzzle pieces are going to have to come together to solve the US’s petroleum problem, and sitting around waiting for the perfect biofuel or new technology to come along isn’t going to do it.

Whether or not ethanol is a good thing, it’s going to increase in a big way: by 2015, 30% of the US corn harvest will be made into gasoline.

Think this is a bad idea?

Source: Delta Farm Press (Mar. 28, 08): And now for the rest of the ethanol story

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