Blog author: lglinzak
by on Wednesday, March 9, 2011

A big report is due out tomorrow which may have a positive or negative impact on economies across the globe. These numbers are not coming from the New York Stock Exchange, NASDAQ, the Tokyo Stock Exchange, the London Stock Exchange, or any other stock exchange; they are actually coming from a report being released by the U.S. Agriculture Department (USDA). It will talk about the role the U.S. will play in preventing or reducing the effects of a global food shortage.

There have been many pundits warning about a global food crisis resulting in a substantial increase in food prices. Shoppers are already experiencing the effects of higher food prices, with wheat prices up 80 percent from a year ago and U.S. retail food prices expecting to climb about 4 percent this year.

And prices are not expected to come down any time in the near future. The Ogallala Aquifer in the U.S. is depleting, and without a way to replenish itself, experts are wondering if the U.S. is on the verge of seeing another dust bowl. Texas’ wheat crop is also predicted to not meet harvesting expectations as 56 percent of its crop is rated in poor to very poor conditions by the USDA with dry weather persisting. Furthermore, an article published in Foreign Policy articulates many variables contributing to the increase in food prices and the potential food crisis which include population increase, arable lands depleting, the increasing demand for water for numerous uses, and urban sprawl. The industry is left with a lot of factors to compete with while trying to keep prices as low as possible.

It is important to note that the developed world is not immune from the adverse effects of a potential food crisis. Karen Ward, senior global economist at the worldwide bank HSBC, explains slow wage growth and use of food crops in alternative fuels are going to result in problems for those living in developed countries. While speaking on Jeff Randall Live, Ward also warned the UK may be subject to the food riots similar to those that occurred in other countries:

“Even in the developed world I think we have very, very low wage growth, so people aren’t getting more in their pay packet to compensate them for food and energy, and I think we could see social unrest certainly in parts of the developed world and the UK as well.”

She went on to highlight the link between high food prices and the escalating cost of crude oil.

“More and more we are seeing that some of these foodstuffs are actually substitutes for energy itself, particularly biofuels. So I think the energy markets are a significant contributor to these food price gains.”

While farmers are continuing to produce bigger crops, the U.S. is expected to see a 4 percent increase in the area planted along with a harvest record for corn of 13.73 billion bushels, it still may not be enough. However, corn is on such high demand due to the increase of the ethanol industry in the U.S., and current rising oil prices are even further contributing to the demand for ethanol. As a result, the 10 percent increase that is projected in the corn harvest will only add to reserves in the U.S. by five days, and by the time the fall harvest begins, the USDA predicts the U.S to only have enough corn left to satisfy the country’s appetite for 18 days.

Whether there is a food crisis of 2011 or not does not avoid the much needed ethical debate involving the use of crops. As I discussed in an earlier post, the U.S. is mandated to continue to increase its ethanol production, and with biofuels increasing the demand on crops and ever increasing population that demands food, priorities need to be evaluated and questions need to be raised. Shall more emphasis be placed on crops being harvested for food consumption or fuel usage?


  • Anna

    Great article! This makes me fearful of what is to come with our growing (and unsustainable) populations rates and an even more growing food shortage. How much will be too much to pay at the pump or in the fresh produce aisle?

  • http://twitter.com/bioblogger BIOblogger

    This article is a simplistic treatment of the subject of food vs. food that incorrectly blames the USA corn ethanol industry for the food crisis.

    Exports of corn from the USA have not diminished so the price spikes for food are not related to lack of US corn supply. Furthermore, 30% of the volume of corn used for biofuels becomes high protein livestock feed in the form of distiller dried grain – so corn ethanol is actually food AND fuel not food VS. fuel.

    On the other hand, the price of oil sharply increasing causes a number of dominoes to fall – exchange rates drop, cultivation & harvest costs increase, distribution costs soar, commodity speculators panic, poor & rich nations alike get poorer. The only ones who make out are the oil producing nations.

    We need to end the oil addiction NOW. Brazil started 30 years ago and now have ethanol choices at the pump that broke their addiction. We only have corn for biofuels in the USA but that is NOT driving the prices of every other commodity worldwide. Only oil can do that.

    Corn ethanol will help build infrastructure and flex-fuel vehicles usage needed for non-food ethanol to provide alternatives at the pump – that is the vision of the EISA bill you refer to. The corn portion of 15 billion gal/yr. has practically maxed out already. It is the principal USA means to the end objective of reducing our addiction to oil and it is a good one that the Obama adminstration supports.

  • http://www.acton.org John Couretas

    BIO: What do you make of this? From “Biofuels Driving Up Food Prices As Iowa Primary Approaches.”

    The quantity of grain to be consumed this year for US ethanol production – 4.9 billion bushels – boggles the mind. That’s more than twice as much as all the corn produced in Brazil and more than six times as much as is grown in India. Put another way, that’s more corn than the output of the European Union, Mexico, Argentina, and India combined.

    Despite these facts, last month, President Obama, in his State of the Union speech, said “we can break our dependence on oil with biofuels.” Meanwhile, the Iowa Caucus, the nation’s first presidential primary is now less than one year away. And Newt Gingrich, the former speaker of the US House, who’s dearly hoping that he can be a viable candidate for the 2012 Republican presidential nomination, was recently in Iowa cravenly wooing the ethanol producers and slamming “big city” critics of the ethanol industry. Alas, there’s little reason to expect much bravery out of Gingrich’s fellow Republicans on Capitol Hill. Speaker of the House John Boehner recently told reporters not to expect cuts to the ethanol subsidies because they are “not in the discretionary spending pot.”

    While Obama prevaricates and Congress dithers, ethanol boosters are once again claiming that their sector has negligible effect on grain prices. Instead, they blame surging grain prices on, well, everything but their industry. To be sure, bad weather in Russia and Australia has cut grain harvest in those countries. In addition, rising demand for grain in the developing world is affecting prices.

    But the events of the last few weeks — corn futures at near-record highs and social unrest related to food prices – are nearly identical to the mayhem that occurred in 2007 and 2008. Back then, at least 15 studies, including ones by Purdue University, the World Bank and the Congressional Research Service, exposed the link between increasing ethanol production and higher food prices. Soaring food prices led to violent protests in Egypt, Cameroon, Ivory Coast, Haiti, Mauritania, Ethiopia, Madagascar, the Philippines and Indonesia. And worries about adequate food stocks led several countries to ban food exports.

    New studies are, once again, finding a direct link between the corn ethanol scam and higher food prices. In December, a study by two US agriculture economists, Thomas Elam and Steve Meyer, found that corn prices are being pushed dramatically higher by demand from the ethanol sector. Elam and Meyer, who have done consulting work for the meat industry, found that without the ethanol mandates, the average price of corn would now be lower by more than $2 per bushel. And they conclude that “biofuels policy has caused significant cost increases for all users of feedgrains.”

    Here’s the Energy Tribune’s summary of federal ethanol policy:

    Corn ethanol is the biggest scam to hit America since the days of Charles Ponzi. Making subsidized motor fuel out of the most subsidized crop in America borders on fiscal insanity. No matter how you slice it, corn ethanol cannot provide enough fuel to displace imported oil. In 2005, U.S. farmers produced about 11.1 billion bushels of corn. If the U.S. turned all of its corn into ethanol, it would only supply about 6 percent of America’s total annual oil needs.

  • Louie Glinzak

    Bio,

    Thank you for your comments. I appreciate the thoughtful discussion they have generated. However, I feel a big picture needs to be taken into account and that is exactly what I have been trying to do with this post and my previous posts directing attention to unintended consequences of various forms of alternative fuels and energy. By articulating many of these unintended consequences I feel the current ethanol industry does not look at the big picture and take these unintended consequences into account. While it may solve our oil addiction, this will give us a whole new set of problems that will be passed onto future generations and is not a good practice of stewardship.

    First I would like to direct you to my earlier posts on ethanol. They answer many of the questions you raised in your comments.

    As you point out, Brazil is using ethanol, but it is at a very high cost. In 2007 light was shed on their unsustainable agriculture practices and the rapid deforestation that is occurring in order to continue to meet their demand for ethanol. Deforestation causes many problems and does not align with sustainable agricultural practices. Brazil will most likely reap the consequences in the future where their agricultural industry will be hampered by fields that are no longer fertile. Without a doubt, this unintended consequence will cause problems for years to come. Many undeveloped countries are already faced with similar problems that have resulted from deforestation.

    Furthermore, the problem with ethanol, as noted in the comments by John Couretas, is it is a government funded market. Ethanol cannot compete without costly government subsidies paid for by the taxpayers. It is very costly, inefficient, and potentially harmful. I address these issues in my earlier post here and here
    Oil prices are high; however, this is partially due to policy enacted by the Obama administration. The economics of the oil market are very complex; however, the Heritage Foundation took note of 10 factors controlled by the Obama Administration that are culprits to the high oil prices. It does not help that the Obama Administration has crippled domestic oil exploration, and as I also noted in an earlier post, is looking at banning off shore drilling along the continental shelf. Oil prices will continue to rise if such polices continue It also goes without saying, that the same claims of the ethanol industry, that it produces jobs and infrastructure, can also be made in support for domestic drilling.

    You correctly point out that the corn portion that the EISA mandates has already maxed out. This should be a red flag as we are required to increase the amount of ethanol produced each year. There are many limited resources that support the agriculture industry such as fertile land and water. Population is increasing and that will result in a higher demand for water and the use of land as urban sprawl continues—uses of both resources do not benefit the agriculture industry. Agriculture across the globe will have to contend with an increasing population, and, as I note in this post, the future of agriculture in the U.S. which utilizes the Ogallala Aquifer is not bright, thus, the amount of arable lands in the U.S. may be significantly diminished in the near future. Yes, ethanol does not use the type of corn used to feed people, however, it takes away from producing other crops that do feed people. This is a cause of rising food prices. I point out in my earlier posts, while corn production is up in the U.S. there are many other crops that remain unchanged in production.

    A point is also made in your comments that 30 percent of the volume of corn used in biofuels becomes high protein livestock feed in the form of distiller dried grain. This does not diminish the fact that ethanol production already puts a high demand on the same type of corn many livestock farmers utilize to feed their stock. This in itself increases the demand for feedstock corn, resulting in higher prices for feedstock corn which will attribute to higher meat prices.

    As we all know oil too has its downfalls, and I am by no means saying it is perfect or the resource that should be utilized. However, before we drastically change our energy policy we need to take into account all factors for all energy options. The pros and cons must be weighed from every aspect. A drastic change in our energy policy will effect many future generations and needs a very pragmatic approach. The best solution to oil may not even have been thought of yet. However, I hope the free market fosters a barrier free environment allowing scientists to continue researching and discovering new options to oil and what may be the most promising solution.

  • Steve Schaper

    Truth is, only 2% of world grain production goes to ethanol.

    http://76.227.216.131/blog/John_Block_Reports_From_Washington_178/attacks_on_ethanol/

    Further, in America, it is feed corn, not human food, which goes to ethanol, in the upper Midwest where most corn is grown, at a rate of about 6-8% (If last year’s forecast of growth in capacity to produce ethanol carried through) I have seen many claiming that it is human food, and that it is at a rate of 40%, and that is simply an utter, extreme falsehood. It isn’t even possible. We don’t have anywhere near that kind of capacity. What we do have is excess feed corn most years that beggars the imagination, and it is nice to have a market for it. Government agriculture policies drive that overproduction. A stroke of a pen in Washington could result in billions of bushels of waste corn, and another farm crises, driving family farmers from their ancestral homes in a recapitulation of the Highland Clearances. That would be a tragedy in human terms, and for anyone who believes in distributism and humane economics.

    NAFTA and Mexican government policies favoring large producers produced the increase in cost of tortillas in Mexico. The California and US government’s contract-breaking with farmers in the Klamath and Central Valleys, turning them into deserts, along with killing freezes in Mexico are what are behind the rise in vegetable prices. Failure of the rice crops in Indonesia, Australia and Africa are behind the food crisis in Africa.

    Overall, the debasing of the dollar by the Obama Administration, and the rise in oil and gas prices, as well as speculation on the Chicago Board of Trade (farmers do NOT get to name a price), are behind the rise in the price of food. Not ethanol production.

    Ethanol production is certainly not the full answer to the energy crisis, but it is, for the time being, part of it. And NO ONE is starving as a result.

  • http://www.acton.org John Couretas

    From the CBO paper “The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions” (April 2009)

    Producing ethanol for use in motor fuels increases the demand for corn, which ultimately raises the prices that consumers pay for a wide variety of foods at the grocery store, ranging from corn syrup sweeteners found in soft drinks to meat, dairy, and poultry products. In addition, the demand for corn may help push up the prices of other commodities, such as soybeans. (Farmers that increase the number of acres they plant with corn to meet rising demand will most likely plant fewer acres with other crops.) From April 2007 to April 2008, the increasing demand for corn to produce ethanol contributed, in CBO’s estimation, between 0.5 and 0.8 percentage points to the 5.1 percent increase in the price of food overall as measured by the component of the consumer price index for all urban consumers (CPI-U) that measures food prices.18 That is, the growing use of corn for ethanol accounted for about 10 percent to 15 percent of the increase in the CPI-U for food over the April-to-April period.

    [...]

    One analysis of increasing ethanol production domestically and globally found that the rise in the United States’ production of ethanol could account for about 20 percent of the increase in corn prices in 2008, but that global ethanol production —- including the effects of ethanol production in the United States and increases in the production of ethanol in other countries—could account for 35 percent of the price increase. Measured over a longer period, global production of ethanol and other biofuels has tripled since 2000, which has raised demand for many biofuel feedstocks (such as corn and sugarcane for ethanol production and soybeans and rapeseed for biodiesel). Analysis from the International Food Policy Research Institute suggests that global biofuel production could account for 40 percent of the rise in corn prices between 2000 and 2007.

  • http://www.acton.org John Couretas

    From “Why cattle markets are having a cow” by Colin Barr, Fortune Magazine (February 2, 2011)

    Raising cattle is also more land intensive than farming chicken or pigs. Cattle producers thus find their decisions complicated by factors like surging land prices — and by America’s insane embrace of corn-based ethanol as a motor fuel.

    The government’s ethanol subsidy has taken millions of acres out of feed production and put it into inefficient biofuel production, right at a time when global food demand was lifting off. The “ethanol juggernaut” is part of what’s behind the near tripling of corn prices since 2006, Peel says.

    You’d think that development might send a signal to Washington that what it’s doing isn’t working, but you’d be wrong. The government recently cleared the use of cars that use fuel containing half again as much ethanol as previously permitted. With oil prices rising under the same global demand pressures felt by agriculture, there is no sign of relief for the rising prices on grains.