Ethanol Mandates Could Drive Up Food Prices, Enviros Say

Monisha Bansal | Staff Writer | Monday, February 4, 2008

Ethanol Mandates Could Drive Up Food Prices, Enviros Say

( - Environmental groups are backing away from their support of federal biofuel and ethanol mandates, because while they say renewable fuel sources reduce greenhouse gas emissions they also could raise food costs and cause shortages.

"We are witnessing the beginning of one of the great tragedies of history," Lester Brown, president of the Earth Policy Institute, said in a statement. "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."

"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," he added.

"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," Brown said.

But industry advocacy group Ethanol Across America said in a policy statement that "despite extensive media coverage about the potential for a significant increase in food prices due to corn demand for ethanol, statistics simply do not support this claim.

"U.S. consumers continue to enjoy the most affordable and abundant food supply in the world - in spite of a surge in corn demand for ethanol production," the group said.

According to a March 2007 Congressional Research Service report, ethanol demand has already driven up corn prices as well as prices for soy beans and other grains.

According to the report, "Since food costs represent a relatively small share of consumer spending for most U.S. households, the price run-up is relatively easily absorbed in the short run.

"However, the situation is very different for lower-income households, as well as in many foreign markets, where food expenses can represent a larger portion of the household budget," it added.

Brown noted that the World Bank reports that for each one percent rise in food prices, caloric intake among the poor drops 0.5 percent.

Britt Childs, an analyst with the World Resources Institute's Climate, Energy, and Pollution Program, told Cybercast News Service that "biofuels crops often compete with food and feed crops for land use, water, and other inputs, or are themselves food crops diverted from the table or stable to the fuel tank."

"Unwise policy design choices can not only negate the potential energy and emission benefits of biofuels but can also impact human welfare through higher food prices, and damage the environment through deforestation and more intensive farming," he said.

"Policy makers need to focus more on ensuring that biofuels actually deliver environmental and energy benefits than on ramping up production," Childs said.

"Biofuels do have potential to play some role in meeting future energy demand," Childs added. "But since large-scale carbon displacement would require significant destruction of global forests, the benefits of biofuels would likely be outweighed by the costs with respect to forestry, agriculture markets, and economic hardship for the world's poor."

Brown said the crop fuels program that currently satisfies scarcely three 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," he said.

Sallie James, a trade policy analyst with the libertarian Cato Institute, agreed.

"The federal government should abandon its protection of U.S. farmers from competition and its pursuit of a misguided biofuels policy whose environmental benefits are spurious at best," she said.

"Politicians especially keen to 'stimulate' the economy by putting more money in the hands of consumers should start by reducing the taxes on imported dairy products, sugar, rice, and ethanol," James added.

Ethanol Across America, however, noted that even at a time when corn prices nearly doubled, consumer food costs increased by less than average - 2.1 percent compared to the 25-year average of 2.9 percent.

"An increase in corn prices will have nominal effect on total household spending," the group added, noting that energy costs have a larger impact. "When crude oil moved from $40 per barrel to $70 per barrel, consumers faced a 75 percent increase in fuel prices. That hits the pocketbook hard - making it more expensive to get to the grocery store in the first place.

"Higher energy prices drive food prices up - affecting not only raw material production (grain, etc.), but the cost of processing and transporting products to the marketplace," Ethanol Across America said.

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