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The corn ultimatum

I am not a fan of our corn ethanol policy as I made clear made clear during the last food crisis (see “The Fuel on the Hill” and “Can words describe how bad corn ethanol is?” and “Let them eat biofuels!“). In a world of blatantly increasing food insecurity — driven by population, dietary trends, rising oil prices, and growing climate instability — America’s policy of burning one third of our corn crop in our engines (soon to be 37% or more) is becoming increasingly untenable, if not unconscionable.

I was glad to see former Pres. Bill Clinton start talking about this in a Washington Post piece headlined, “Clinton: Too much ethanol could lead to food riots” — though I tend to see the world’s increasing use of crops for fuel as an underlying cause for growing food insecurity, something that makes the whole food system more brittle and thus more vulnerable to triggering events, like once in 1000 100 year droughts and once in 500 year floods, which is to say climate instability (see WashPost, Lester Brown explain how extreme weather, climate change drive record food prices).

If you want to understand why it will be politically difficult to roll back US ethanol production to saner levels, Reuters has a good article, “Analysis: In food vs fuel debate, U.S. resolute on ethanol.” Yet it is that piece which notes, “U.S. ethanol production this year will consume 15 percent of the world’s corn supply, up from 10 percent in 2008.”

Tim Searchinger, a research scholar at Princeton, had an excellent piece in the WashPost explaining “How biofuels contribute to the food crisis,” which I excerpt below:

Each year, the world demands more grain, and this year the world’s farms will not produce it. World food prices have surged above the food crisis levels of 2008. Millions more people will be malnourished, and hundreds of millions who are already hungry will eat less or give up other necessities. Food riots have started again.

Nearly all assessments of the 2008 food crisis assigned biofuels a meaningful role, but much of academia and the media ultimately agreed that the scale of the crisis resulted from a “perfect storm” of causes. Yet this “perfect storm” has re-formed not three years later. We should recognize the ways in which biofuels are driving it.

Demand for biofuels is almost doubling the challenge of producing more food. Since 2004, for every additional ton of grain needed to feed a growing world population, rising government requirements for ethanol from grain have demanded a matching ton. Brazil’s reliance on sugar ethanol and Europe’s on biodiesel have comparably increased growth rates in the demand for sugar and driven up demand for vegetable oil.

Agricultural production is keeping up in general with the growing demand for food — but it keeps up with the added demand for biofuels only if growing weather is good. A good growing year in 2008 helped end that year’s crisis, but average-to-poor weather since then has stressed inventories and confidence. Higher fuel costs for farmers and a weaker dollar contribute to higher prices, but prices soar only when large consumers, fearing that production will continue to fall short, bid up prices to secure their supplies.

Much of today’s discussion focuses only on the challenge of meeting rising food demand because of factors such as rising meat consumption in China and long-term underinvestment in agricultural research. Droughts in Russia and floods in Australia over the past year may be early harbingers of climate change. But if it is hard to meet rising food demands, it must be harder to meet demands for both food and biofuels.

… some studies evaluated the effect of biofuels on retail food prices in the United States rather than on wholesale crop prices worldwide. Not surprisingly, they found little impact. The price of corn in your corn flakes and other retail products is so small that even a tripling of crop prices has little effect at U.S. grocery stores. But the world’s poor do not eat processed, packaged corn flakes; they spend more than half of their incomes on staples such as corn meal.

Several reports tried to segregate the precise role of biofuels from weather and other factors. That’s not possible because the causes multiply each other. Just as a political tremor in the Middle East makes oil prices jump in tight markets, so drought in Russia sends wheat futures soaring once biofuels have stressed grain markets. In 2008 and again recently, some governments have responded by banning grain exports to keep domestic prices down. This has the effect of forcing prices higher for everyone else. You can blame national self-interest and the inevitable vagaries of weather, but the key is to avoid tight markets in the first place.

A broad misunderstanding has also arisen from economic models predicting price increases from biofuels that are still far lower than those of the past decade. In fact, these models do not estimate biofuel effects on prices today but those in a future market “equilibrium,” which will exist only after farmers have ample time to increase production to match demand. Today, the market is out of equilibrium. Biofuels have grown rapidly, from consuming 2 percent of world grain and virtually no vegetable oil in 2004 to more than 6.5 percent of grain and 8 percent of vegetable oil last year. Governments worldwide seek to triple production of biofuels by 2020, and that implies more moderately high prices after good growing years and soaring prices after bad ones.

The good news is that relief is possible. The same economic studies imply that food prices should come down if we can just limit biofuel growth. Corn ethanol is nearing Congress’s requirement for 15 billion gallons a year, and lawmakers need to hold it there. Similarly, Europe must rethink its mandates. For “advanced biofuels” required by Congress, the Obama administration needs to focus on fuel sources that do not compete with food, such as garbage and crop residues, and not grasses grown on good cropland. Otherwise, the sequel to the food crisis is likely to turn into a series.

Hear! Hear!

As an aside, conservatives like to claim that it is environmentalists who gave us our current biofuels policy, but in fact I never have met an environmentalist who thought we should mandate anywhere near the current amount of corn ethanol.

The only reason environmentalists and clean energy advocates even tolerated energy deals with corn ethanol mandates is the hope that jumpstarting the infrastructure for corn ethanol would pave the way for next-generation cellulosic ethanol. That turned out to be a mistake (see “Are biofuels a core climate solution?“).

We have gone far beyond what is tenable. Yes, peak oil (and the energy-intensive nature of food production) means that oil prices will rise in tandem with food prices, thus increasing the profitability of biofuels. And yes, we are a rich country, the breadbasket of the world, politically far more impervious to higher food prices than higher oil prices.

But as population grows, developing countries’ diets change, and the extreme weather of the last year increasingly becomes the norm in a globally warmed world, food insecurity will grow and our biofuels policy will, inevitably, collapse. It must.

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