Ethanol and Food Prices: Crisis?

by kespeland on June 4, 2008


First, some benefits. Ethanol is a kind of biofuel, made most often from corn. It’s added to gasoline to increase the oxygen content. That makes the gas burn more efficiently, and cleaner. About half of America’s gasoline gets blended with 10% ethanol. The American Ethanol Coalition reports that blend reduces greenhouse gases by up to 20%. And new ethanol plants provide jobs as well as a market for farmers. Plus, it’s politically popular: the president wants ethanol to make up a significant part of the nation’s energy portfolio.

Now, here are some costs.

MSNBC TV Anchor: “….A spike in world wide demand for corn used in livestock feed, food products, and ethanol production is straining supplies…..”

You can’t turn on the TV or open the paper today without food supplies or prices in the headlines. But the cause of what many are calling the “food crisis” is still unclear.

Some blame the rising price of corn for higher grocery bills, corn being a staple ingredient of so many foods. And some blame ethanol, which uses corn that might have otherwise entered the food supply. Here’s how Adam Andrews from the Kentucky Corn Growers Association explains it. Not surprisingly, he says corn is the scapegoat. Forces—other than corn–are at work when it comes to food prices.

“The US economy is starting to enter a recession, that’s causing a lot of hedge funds and speculation that’s being shifted from stock markets, typical types of investments, over into the commodities futures market and grain market.”

It’s certainly true the commodities markets are flourishing. Betting on corn right now makes a lot of sense: corn prices keep rising, and corn is in more demand. For example: a fifth of the nation’s corn went into making ethanol. And the price of a ton of corn has more than doubled in the last four years. Ethanol production has more than doubled since then in this country. And in Kentucky, the amount of ethanol produced is expected to grow from about 38 million gallons a year right now, to nearly 185 million gallons by 2009. I ask again, is ethanol is to blame for those high food prices?

“Clearly biofuels must have some impact, because they are competing for agricultural output…”

This is Liz Marshall. She’s an economist and biofuels expert with the World Resources Institute.

“…but the extent of that impact relative to other drivers on food prices, like increased demand and the increased price of energy, it’s very difficult to know.”

Federal and international agencies disagree about the link between ethanol and high food prices. And agencies from the World Bank to the USDA have devoted hundreds of pages of research to the question. What gives?

“It’s very difficult to sort through it all. And part of that is because of course every group has its own agenda. And part of it just is that we simply don’t have the analytical capacity to understand it at this point, to understand all of the forces at work.”

Forces like the price of oil, the price of other commodities, a late corn planting, and drought. But questions about ethanol go beyond its significance for food prices. Proponents say it will help liberate us from imported oil. And that it will reduce greenhouse gases. Critics say other environmental problems outweigh those benefits…problems like more agricultural run-off from corn production, and other kinds of air pollution.

But ethanol fans and detractors alike say we’re not locked into corn. All you really need to make ethanol is sugar. And that can come from the sugars in left overs, like corn stalks. And it can also come from your favorite fizzy beverage. A company headquartered in Louisville is making ethanol…more than 3 million gallons a year of it…from unwanted consumer products. Beer. Wine. Soda pop. Liquor. Anything that contains sugar. Parallel Products’ spokesman Hal Park took me to the plant’s warehouse.

“These products are coming off the market for whatever reason, maybe there’s bad packaging, maybe the product’s been discontinued.”

The warehouse looks like a Sam’s Club or a Liquor barn. Workers load these boxes, packaging and all, onto a conveyor belt. Then everything drops into a cage-like metal mouth.

“The cage spins the product around, the glass breaks up, the cardboard falls apart, the liquid drains down,” says Park.

And everything is captured. The liquid gets sent to fermentation tanks, cooked and distilled, and turned into ethanol. And all of the packaging is recycled. It’s a promising technology for fuel that doesn’t require new land to be cleared for corn, or corn to be diverted from the food market to the fuel market. But not many people are making it this way. That’s because the process is just a bit more complicated. For now, corn-based ethanol production seems set to grow. Strong incentives… from state to federal subsidies and tax credits …make producing ethanol attractive in Kentucky and across the nation.

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