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Ethanol and Peak Food

No sooner had the high-gas-prices frenzy on Capitol Hill died down than a new obsession emerged— ethanol. Everywhere one looked, there was ethanol. If you live in an "over-ozoned, non-attainment" region, then every gas pump you visit has the words "10% ethanol" affixed. Television ads, magazines, and newspapers are filled with pictures of corn-yellow SUVs filled with motorists happy in the knowledge that their vehicle can run on good old American grown E-85 (85% ethanol- 15% gasoline). Their fuel dollars are staying right here in the USA and are not filling the coffers of foreign potentates.

Last Sunday, the Washington Post, which is in charge of keeping the nation's capitol up to date on all sorts of things, ran a major "A" section story on the ethanol craze sweeping the nation. From sea to shining sea, everyone from Microsoft's Bill Gates to New York 's Governor Pataki was building or announcing new ethanol plants. Rural America will soon be awash in them.

Across the farm belt everyone was getting rich making fuel from corn. Iowa wants ethanol to replace 25 percent of the state's gasoline consumption and General Motors pledged to build 400,000 more E85 capable cars this year. Farm state Congressmen are smiling as the century old problem of agricultural overproduction seems to be coming to an end. Corn prices are markedly higher. Agribusiness profits are soaring.

One searches the Post story in vain, however, for the downside to all this euphoria. As anyone who has followed the issue is well aware, there is a major debate going on about whether or not the production of corn-based ethanol takes more energy than it produces. If it does, then ethanol from corn is a giant loser for everyone but the farmer and the agribusinesses. There is also the fact that while ethanol burns cleaner than gasoline, it only produces about 70 percent of the energy and therefore gets 25-30 percent less mileage. If ethanol and gasoline are selling in the vicinity of $3 at the pump, then, in reality, you are paying $4 a gallon in comparison to sticking with plain old gasoline.

Finally we have the big question. As America is going through 500 million gallons of motor fuel per day, how much of this can safely be replaced by sharing our food with our fuel tanks?

A few days after the Post story, the answer came with a thundering crash when Canada 's National Union of Farmers issued a report on the world grain situation. The first sentence says it all: "The world is now eating more food than farmers grow, pushing global grain stocks to their lowest level in 30 years".

If the first sentence didn't get your attention, the second one says: "Rising population, water shortages, climate change, and growing costs of fossil fuel-based fertilizers point to a calamitous shortfall in the world's supplies in the near future."

There is a lot more detail, but the conclusions are the same— worldwide food production is on the downswing. The Canadian analysis is confirmed by numerous reports from around the world. A drought is affecting production in much of the world's wheat producing belt with losses of as much as two thirds of the crop in some areas likely.

A food vs. fuel debate has already broken out between Cargill and Archer, Daniel, Midlands (ADM), the two giants of the US agribusiness. While addressing a group of business writers, the CEO of Cargill said he saw the production of food as the most important task of agriculture. He pointed out that if the entire US corn crop were used for fuel, it would only replace 20 percent of US gasoline consumption.

The next day, the chairman of ADM retorted that the world has plenty of capacity to grow food. He maintains "there is no consumption vs. combustion debate" and that hunger and malnutrition around the world come from "a lack of infrastructure and a lack of capital." ADM is producing about 1 billon gallons of ethanol a year and plans to increase this to 1.5 billion.

Overall, about 15 percent of the US corn crop is used to produce ethanol, but there are so many corn-to-ethanol plants under construction or planned for the near future, this could easily increase to 40 or 50 percent of the corn crop according to an industry consultant.

If current trends continue much longer —crop destroying droughts, hurricanes, increasing energy prices, and the construction of ethanol plants— it is obvious that food is going to become more expensive, probably much more expensive.

Current US policy, deriving from aggressive lobbying by agribusiness and the plight of some farmers who have suffered for decades from low agriculture prices, is to support fuel from crops. While there are obviously short-term benefits, such as the rapid reduction of surpluses, higher agricultural prices, and a generally stronger farm economy, it is starting to look as if the "short term" may be very short indeed.

Increasing gasoline prices are likely to increase the demand for ethanol and thus the profitability of converting it to a motor fuel, thus exacerbating the situation. At some point the government will have to become involved and the food vs. fuel debate will begin in earnest.

This will, of course, be a short debate. There are acceptable alternatives to putting corn into your gas tank such as slowing down, staying home, taking a bus, or joining a car pool. There are no substitutes for eating.

As much of the world's food production rests on oil, then a decline in oil and natural gas production must reduce food production. If it hasn't happened already, then at some point there will be a peak food year when worldwide production of grain or food calories, or whatever you want to measure, will reach a maximum for the foreseeable future. However, unlike oil which was bequeathed to the world in a finite amount, until recently food was grown without benefit of fossil fuels. Thus the potential is there for food production to resume its growth someday without benefit of oil. This, however, is likely to happen in some other era.

In the meantime, however, it is a safe bet we are going to be hearing a lot more about food vs. fuel and that large-scale food-crop-based ethanol production is likely to slip quietly away.

What do you think? Leave a comment below.

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