Ethanol's Impact On Food Prices Is Grossly Overstated
Lately, the ire of many commentators has been focused on the biofuels industry. Their claim is that increased demand for corn and other feedstocks to make biofuels has caused a worldwide shortage, sending commodity prices through the roof. These efforts have led to calls by some policymakers to reconsider the nation's support for biofuels.
However, the facts show that the effect of biofuel manufacturing on food prices is negligible. According to an editorial in the Portland Tribune on April 22, domestic corn growers (noting the demand from ethanol manufacturers) increased corn output by 24% in 2007, well more than all the corn used in ethanol that year. US corn exports reached an all-time high in 2007, notwithstanding the diversion of some corn to domestic ethanol. If there is a world corn shortage, it does not arise in the United States.
Moreover, the contribution of corn to many staple groceries is minimal in terms of cost. For example, a standard box of cornflakes includes about 5 cents worth of corn and a can of soda less than 2 cents worth of corn sweetener, even at today's corn prices. It is true that the cost of raising livestock has gone up due to corn price increases, but blaming ethanol for higher meat prices ignores the calls that have been made for years, and which have fallen mostly on deaf ears, for the livestock industry to modernize and diversify its feed supply.
The real culprits for rising food prices are more complex. Among them are depressed prices for wheat, which has led to a record-low worldwide wheat harvest. Significant natural disasters have affected harvests, most notably the drastic shortage of rice from Australia due to extensive fires in 2007. Oil prices over $120 a barrel mean that transporting food is more expensive. Transportation costs add far more to the bottom-line price than increased prices for corn. Also, a radically weak dollar makes food imports more expensive to American consumers.
Finally, policymakers and consumers alike need to keep in mind that corn and soy are first-generation feedstocks for biofuels that will soon be replaced by other sources that are not also directly part of the human food supply. I've used this analogy before – giving up on biofuels now would be like giving up on air travel because the Wright Brothers could only fly a few hundred feet.
Look behind the curtains of the hue and cry over biofuels. I suspect you will find the oil industry executives pulling the levers, at least when they're not too busy testifying to Congress about record oil company profits. Note that while food prices have risen about 11% since 2001, the price of a gallon of gas in the same period has risen by 96%. We've been pulling oil out of the ground for over 100 years and still have not made much progress on controlling its harmful side effects. We owe the biofuels industry some perspective and some patience as it develops better technologies.
Posted by David J. Petersen, partner practicing in the Sustainability and Real Estate & Land Use Practice Groups.
