The Ethanol Apologists
By Robert Bryce
The outrages of the ethanol mandates are growing by the day.
Last week, a study funded by American beef, pork and chicken producers estimated that the total cost to taxpayers of the corn ethanol mandates now exceeds $33 billion per year. That's equal to about $106 per American citizen. While the soaring cost of the ethanol are maddening, even more galling are the continuing claims by a group of ethanol apologists who insist that the ethanol industry is having no effect on food prices. Those spurious claims are being made at the same time that the World Bank is warning of a global food crisis and unrest is increasing in several countries due to soaring food prices.
In early March, Robert Zubrin, a major proponent of biofuels and the author of the book, "Energy Victory," wrote an oped in which he declared that "you can't blame ethanol for food price increases." Earlier this month, Sean O'Hanlon, the executive director of the American Biofuels Council, when asked how biofuels are affecting good prices, replied, "They really don't." He went on to declare "Ultimately, there is more food available because of biofuels rather than less."
In an April 11 letter to the New York Times, Ron Litterer, the president of the National Corn Growers Association, said that U.S. farmers are "producing enough corn for all needs" and that when it comes to food price increases, it is wrong to cast "ethanol as the devil."
On April 15, after several foreign leaders blamed America's ethanol mandates for pushing food prices higher, the New York Times quoted Senator Charles Grassley, an Iowa Republican and longtime ethanol backer, as saying it was a "a big joke" to blame ethanol. He then said none of those foreigners would eat corn if it was placed in front of them.
Several factors are driving food prices higher including growing global grain demand, crop failures in other countries, rising energy prices, and the weak dollar. That said, its abundantly obvious that the ethanol apologists are denying reality. There's simply no question that the key variable in the food price equation--and the one that could have been easily avoided--is the ethanol scam.
The numbers tell a clear--and disturbing -- story.
Since 2000, the amount of corn used to make ethanol has increased nearly six fold. By next year, according to the National Corn Growers Association, some 4 billion bushels of corn--about one-third of the expected crop -- will be used to make motor fuel.
In February, the Federal Reserve Bank reported that food prices in 2007 jumped by 4.5 percent, which it calls the "largest in nearly two decades." And the Fed placed much of the blame on corn ethanol, saying "Food prices accelerated in response to strong world demand and high demand for corn for the production of ethanol." It went on, saying "Taken together, prices for meats, poultry, fish, and eggs rose 5.5 percent, and prices of dairy products were up at double-digit rates."
More telling numbers come from the U.S. Department of Agriculture. On March 11, the agency released its report on world agricultural supply and demand. The USDA estimates that global grain demand will grow by 5.4 percent this year. Fully half of that growth will come from U.S. consumption of corn for ethanol.
9, the World Bank released a report which said "Increased bio-fuel
production has contributed to the rise in food prices." It continued,
"Almost all of the increase in global maize [corn] production
from 2004 to 2007 (the period when grain prices rose sharply) went
for bio-fuels production
in the U.S., while existing stocks were depleted by an increase in global consumption for other uses." The report went on to dismiss the notion that higher energy prices are to blame for soaring food costs. "Only a relatively small share of the increase in food production prices (around 15%) is due directly to higher energy and fertilizer costs."
The soaring demand from the ethanol sector has helped push prices higher for all grains. Over the past two years, corn prices have more than doubled and soybeans have nearly tripled. Those soaring grain prices are likely to mean higher food prices for years to come. Earlier this year, Bill Lapp, an Omaha-based agricultural economist, predicted that that food prices will increase at an annual rate of 7.5 percent for the next five years. And Lapp told me that he based his projections on a corn price of $4 per bushel. Corn is now selling for about $6 per bushel. Thus, food price inflation could be even higher than Lapp's 7.5 percent estimate.
The soaring price of grain is being felt around the world. Over the past few months, there have been violent protests in Egypt, Cameroon, Ivory Coast, Mauritania, Ethiopia, Madagascar, the Philippines and Indonesia over soaring food prices. On Saturday, Haiti's prime minister, Jacques-Edouard Alexis, was ousted in a no-confidence vote. The vote came after more than a week of violent protests over soaring food and fuel prices.
Worries about adequate food supplies have led several countries to ban exports, including Vietnam and Egypt. China has placed a tax and quota on exports and India has imposed an export ban on non-basmati rice. Earlier this month, the USDA reported that America's grain stocks "are forecast at a 27-year low." And the USDA projects that those stocks could go lower still thanks to the weak dollar and strong overseas demand.
On Saturday, the managing director of the International Monetary Fund, Dominque Strauss-Kahn, said that, "Food prices, if they go on like they are doing today...the consequences will be terrible." World Bank president Robert Zoellick said that the doubling of food prices over the past three years, "could potentially push 100 million people in low-income countries deeper into poverty."
A March report from the International Food Policy Research Institute made a direct connection between the push for biofuels and the potential for increasing hunger among the world's poor. "If biofuel production undergoes a drastic increase, calorie availability in Sub-Saharan Africa is projected to fall by more than 8 percent in 2020, and the number of malnourished children in the region is projected to increase by 3 million."
Food policy analysts are worried that a poor harvest or bad weather could push the global food market into crisis. "That's the gamble," says David Orden, a senior research fellow at the International Food Policy Research Institute in Washington, D.C. "We can't control the weather," Orden told me. "If we get a year of bad harvests, then we'll have further rises in food prices. And that will create instability, particularly in the poor countries."
While Orden is reluctant to single out the ethanol mandates as the main factor in rising food prices, he says, the U.S. has "taken a huge gamble with the world food situation by promoting ethanol." He said Congress "did this without recognizing that the global supply of food is very sensitive to huge increases in demandIt's a policy decision we made without thinking it through carefully enough. And it is certainly one of the key factors in driving the high commodity prices."
Several studies have quantified the overall cost of the ethanol mandates. Last May 2007, Iowa State University's Center for Agricultural and Rural Development, released a report which estimated that the ethanol mandates have increased the food bill for every American by about $47 due largely to higher grain prices. The Iowa State researchers concluded that due to these higher food prices, American consumers are enduring a "total cost of ethanol of about $14 billion." And that figure does not include the billions of dollars in federal subsidies for corn growers or the $0.51 per gallon tax credit that goes to the ethanol producers.
On April 7, Thomas Elam, an Indianapolis-based agricultural economist, released the report referenced at the start of this piece. The report, which was commissioned by Balanced Food and Fuel, a Washington, DC-based coalition of eight associations that represent the meat, dairy, and egg producers, estimates that the biofuels mandates passed by Congress will cost the U.S. economy more than $100 billion from 2006 to 2009. And it said that it is "inevitable that these costs will be passed along to consumers."
Therein lies one of the real perversities of the ethanol mandates: as the global economy--thanks to higher energy prices and the subprime mortgage meltdown -- heads for rougher times, food prices are soaring. And those food prices will increase anxiety among consumers who will further reduce their discretionary spending. When it comes to food, Congress has created a feedback loop that will reverberate in the global economy for years to come.
Thankfully, the U.S. economy is still fairly strong. And American consumers are, for the most part, better off than their counterparts in the developing world who generally spend far more of their incomes on food.
The world's poor will bear the brunt of Congressional mandates that are paying distillers to burn enormous quantities of food in order to make motor fuel at a time when there is no shortage of motor fuel. And that leads to yet the other outrage of the ethanol mandates: no matter how much of U.S. or world grain is diverted to make motor fuel, it will never make a large dent in global oil needs. According to the latest USDA estimates, total world grain production--including corn, wheat, soybeans, rice, millet and other grains -- is currently about 2.1 billion tons per year. Each ton of grain can yield about 105 gallons of ethanol. Converting all of the world's grain into ethanol will yield about 220 billion gallons of ethanol which is the energy equivalent of 145 billion gallons of gasoline per year or about 9.5 million barrels per day. That's equal to about 11 percent of total world oil demand of 86 million barrels per day. Thus, even if we decided to turn all of the world's grain into motor fuel, we still would need to use oil, and lots of it--and we wouldn't have anything to eat.
It's time for the ethanol apologists to face the facts: The ethanol and biofuels mandates that have been foisted on American taxpayers are not just fiscal insanity, they are immoral. And over the coming months and years, the people in the developing world will pay a heavy price for Congress's scandalous approach to food and energy policy.
Bryce can be reached at: Robert@robertbryce.com