Many people are aware that food-based biofuel production has had an influence on food prices. Many people also know that US ethanol production is growing rapidly and now using a noticeable fraction of the total corn supply. However, I’m going to argue that the situation in the near term is potentially more serious than is generally realized.
I will use a mixture of existing data, analysis of biofuel profitability, and simple modeling of biofuel production as an infection or diffusion process affecting the food supply, to demonstrate that there are reasonably plausible scenarios for biofuel production growth to cause mass starvation of the global poor, and that this could happen fairly quickly – quite possibly within five years, and certainly well within the life of the existing policy regimes. It doesn’t have to be this way, but unless we start doing things differently soon, the risks are significant.
This piece is very long, and I apologize for that. But I think it’s important – I’m coming to the view that biofuel growth is by far the greatest near-term challenge arising from the plateauing of global oil supply that we have experienced over the last two years.
I’m going to focus a lot on the US corn ethanol situation, because it’s where the pattern has developed the furthest, and it’s also where we have the best data. Then I will broaden out to look at the global situation where I think the same pattern is developing, but a few years behind.
Biofuel capacity or production as a fraction of food supply for three different cases, along with sigmoidal (ie logistic) projections, 1998-2018. Plum curves show US corn ethanol processing capacity in service or under construction as a fraction of ethanol potential of entire US corn crop. Brown curve shows actual production of US ethanol as a fraction of ethanol potential of US corn crop. Violet curve shows global biofuel production as a fraction of estimate of biofuel potential of entire global human food supply. Sigmoidal curves all have K = 1/3 (infection doubling time of three years), and cross the 50% line at 2008, 2010.8 and 2014.2 respectively. Sigmoids are scenarios, not forecasts. Actual biofuel production growth will depend heavily on oil prices and policy responses to increasing food prices. See text for sources and methods.
…In my mind, this makes pretty clear what is going on. Making food into biofuel was profitable in 2000-2001, with oil/gas prices high, so the industry started to expand. It stopped being very profitable in 2002, so the industry stopped growing. Then it became hugely profitable in 2004-2006, and we had an enormous wave of expansion which is still coming to fruition. However, that additional demand has backed up into corn prices, which have now increased. Thus margins are falling, and we will probably see a drop in the growth rate of corn ethanol capacity for a while. However, if oil prices go up much further, then there will be another big growth wave. This one will be starting from around 35% or 40% of the corn crop and going up from there. Clearly, that will drive another big round of corn price increases.
So at this point, corn prices are indexed to oil prices via biofuel arbitrage.
… You can immediately see the problem here. The biofuel potential of the entire human food supply is quite a small amount of energy compared to the global oil supply – somewhere between 15-20% on a volumetric basis, so 10-15% on an energy basis. If you look at the rate of growth from the mid 1980s to 2000 (and it would be similar to 2005 but the graph doesn’t go that far), we were requiring about an additional 10mbd per decade. So if we continue to try to drive more at historical rates of growth, eg as the middle class in China, India, and other developing countries continue to build roads and get cars, while our oil supply is stagnant, we can only get about a decade or thereabouts from converting our entire food supply to fuel.
However, just because it’s not a very good idea globally, doesn’t mean it wouldn’t be profitable to the folks doing the conversion
…This brings me to the final thing that could stop runaway biofuel growth: public policy. So far, there has been a fairly broad coalition in favor of increasing ethanol production. This encompasses agricultural interests, environmentalists hoping to reduce carbon emissions and rely on a renewable fuel, and many citizens concerned about reliance on Middle Eastern oil supplies. The Renewable Fuels Association reported recently that 3/4 of Americans believe we should increase our reliance on ethanol. This kind of thinking has led to subsidies and mandates for biofuel production in the US, in Europe, and even in a number of developing countries.
My conclusion in this analysis is that this broad agreement is in fact mistaken. It is based on a failure to appreciate the speed with which high oil prices and profitable biofuel operations can fuel a very rapid growth of the industry up to the point that it consumes a sizeable fraction of global food production. This will have only modest benefits for global fuel supply, but will cause massive abrupt global hardship in poor countries. Many unforseeable consequences may follow from that.
I suggest we reconsider our policy.