Posts tagged with: biofuels

Blog author: lglinzak
posted by on Thursday, July 7, 2011

Political news changes quickly, and now reports are coming out of Washington DC that Senator Dianne Feinstein, who has been leading the way in killing the ethanol subsidy and tariff, has struck a deal with Senators Amy Klobuchar and John Thune, two stalwarts for protecting ethanol. While the rumored deal does not indicate the repeal of the blending mandate it is a step in the right direction.

However, while we wait on Congress and the President for action, the Brazilian ethanol industry is eying the U.S. ethanol market. Repealing the tariff will allow Brazil to expand its ethanol industry. Many questions need to be answered before ethanol is imported into the U.S. from Brazil.

In a previous post I posed concerns about whether ethanol can meet both U.S. and Brazilian demands. Furthermore, what are the environmental consequences of ethanol? Reports are showing deforestation in the rainforest. Finally, what will happen to food prices?

It is unfortunate that there are even more questions that need to be answered.

Like the corn based ethanol in the U.S., Brazil’s sugar based ethanol is a false market created by the government. Brazil doesn’t subsidize ethanol; instead it resorts to high taxes. Brazilian gasoline taxes are at 53 percent while the tax placed on ethanol is much lower making ethanol cheaper than gasoline. The question is how long can an industry last and actually be sustainable when it is propped up by the government and is a false market?

It is also important to note that the Brazilian ethanol industry needs a large sum of new investment, about $80 billion worth in the next ten years, to meet global demand. In an industry that is heavily dependent on the government one must wonder, who will pay for these new investments?

Another potential hazard of relying on ethanol is crop shortages. Such crop shortages may occur for a variety of reasons, one of which is out of our control: the weather. What happens when fuel relies on crops, and there is actually a shortage in the harvest? How much of the crop goes to fuel and how much goes to the food supply? Both are important. Food nourishes, however, fuel gets people to their jobs where they earn a salary which they use to purchase food. Brazil may be forced to answer these questions this year as sugarcane production is currently down 25 percent as compared to last year. The lack of production is due to bad weather and aging plants.

However, because of the lack of production sugar prices are on the rise as they saw a 14 percent surge in June. While some are sounding the alarm, other analysts are remaining calm, such as Eli Mamoun Amrouk of the United Nations’ Food and Agriculture Organization:

El Mamoun Amrouk, sugar analyst at the Rome-based FAO, said: “It’s difficult to predict exactly what’s going to happen to the sugar price because the market’s so volatile and so any new information can have a big effect on price. The speculation is still there, exacerbating the trend and changes in the dollar also play a part.

“But the signs are that production is growing significantly and, especially in India and Thailand, the prospects are very positive, so we should see the price start coming down in the summer,” he said.

Whether sugar prices do come down or not, we still face a critical question. If we continue to pursue an energy plan based on biofuels, what happens when we do face a shortage in crop production? The world will be faced with not just rising food prices but also with rising fuel prices. How do people in developed countries, who already have a difficult time affording food, feed themselves when the food supply is actually going into the fuel supply?

Gas prices are not the only thing on the rise. As of yesterday, corn is at its highest level in three years at $7.60 a bushel and prices are not predicated to go down anytime soon. The United States government anticipates a shortage despite farmers’ intent to plant 5 percent more acreage of corn this year, a shortage is still predicted.

Reuters also indicates that rising corn prices will continue:

U.S. corn prices will keep rising to new highs over the coming months, a new Reuters poll has found, as demand from ranchers and ethanol makers proves better able to withstand record costs than many thought.

The forecasts will compound inflation concerns as higher feed costs filter through to beef and chicken prices. Analysts also warned that anything less than perfect growing weather for the spring crop could push prices even higher as traders fear tight conditions will extend well into next year.

As the article later states, the chances of having a perfect growing season with no weather related problems are very slim.

Reuters also asserts that food prices rose by 14 percent over the past three months which can be attributed to the rising use of ethanol and the ranchers demand for feed for livestock: “The rally has sharpened the focus on two imponderables: the price point at which livestock ranchers or ethanol makers will begin to cut back use, relieving demand pressures; so far, traders say there’s little evidence of this happening yet.”

Perhaps the United States should learn from China’s mistake. An article in the New York Times describes how the biofuel sector does affect the food supply and price, and how China’s ethanol use resulted in higher food prices:

It can be tricky predicting how new demand from the biofuel sector will affect the supply and price of food. Sometimes, as with corn or cassava, direct competition between purchasers drives up the prices of biofuel ingredients. In other instances, shortages and price inflation occur because farmers who formerly grew crops like vegetables for consumption plant different crops that can be used for fuel.

China learned this the hard way nearly a decade ago when it set out to make bioethanol from corn, only to discover that the plan caused alarming shortages and a rise in food prices. In 2007 the government banned the use of grains to make biofuel.

However, the article later explains that China is now using cassava, instead of corn. China may have not entirely learned their lesson as cassava is still a food crop used predominately in Africa and also in China during food shortages.

The article by the New York Times adequately closes with a quote from Olivier Dubois, a bioenergy expert at the UN’s Food and Agriculture Organization that gets at the root of the food and fuel argument: “We have to move away from the thinking that producing an energy crop doesn’t compete with food,” he said. “It almost inevitably does.”

Previous blog posts on ethanol, rising food prices, and the moral issues of the two can be found here, here, here, and here.

Blog author: lglinzak
posted 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?

The recent dramatic rise of food prices reflects the worst agricultural crisis of the last 30 years, especially for developing countries whose citizens inevitably spend a larger portion of their incomes for basic needs. The list of countries facing social unrest as a result is long and growing: Cameroon, Egypt, Niger, Somalia, Ethiopia, Mauritania, Bangladesh, Burkina Faso, Haiti, Indonesia, Mexico, Argentina, and the Philippines.

Consequences of these price increases are also affecting the United States, where rice is beginning to be rationed, Europe, where the price of bread in the last six months has grown 17%, and Japan, where butter has disappeared from markets and inflation is appearing for the first time in 10 years.

Many people in the developed world know that the price of oil has risen from $88 to over $114 a barrel in the last six months. But the price of corn, wheat, rice, milk and soybeans have increased even more so; corn and wheat have shot up 70% and rice is up 141% compared to January 2007.

This global crisis is affecting approximately a billion people around the world and the World Bank estimates that it could lead 100 million people into poverty, not to mention starvation.

The causes of this phenomenon are multiple and inter-related. Most economic analysts and agricultural experts have highlighted six main root causes to this emergency:

  • In the United States subsidies given to farmers that grow corn used for the production of biofuel (ethanol). A quarter of the national crop production is now devoted to the bio-fuel industry.

  • In Europe, the Common Agriculture Policy (CAP) which pays farmers to restrict their output and locks out agricultural products from outside the European Union.
  • In Australia, a terrible draught that has lasted 2 years and compromised 60% of the agricultural production.
  • Increasing demand for rice, wheat, meat in China and India
  • Decrease of cultivated land especially in China and India, where agricultural districts are transformed in industrial areas.
  • Increase in the price of fuel which has resulted in an increase in the price of fertilizers.

The market perversions caused by government subsidies for bio-fuel production and the export restrictions mandated by governments in the name of “food security” are particularly damaging and add to what we already know about the law of unintended consequences.

It is interesting and perhaps even surprising to note how the Catholic Church is reacting to this issue, given the Church’s significant role in many developing countries and its presence in many international and humanitarian activities.

Despite heavy lobbying from environmental activists, the Church has given priority to the needs of the human person and his integral development. In practice, this has meant Vatican criticism of bio-fuel subsidies and Vatican support for biotechnology that increases agricultural yields such as the use of genetically modified organisms.

For example, at a recent FAO conference in Brazil, the Holy See’s representative, Msgr. Renato Volante, said “bio-fuel is a serious threat to the natural right of every individual to proper nutrition, causing food riots and an increase in worldwide poverty.” The bishop of San Marino, Luigi Negri, hosted an April 22 event that highlighted the potential of GMOs and new seed specimens that are already being used by 12 million farmers worldwide.And Archbishop Silvano Tomasi the Holy See’s Permanent Observer to the United Nations in Geneva, has blamed poor distribution, rather than the lack of food, for the crisis.

Curiously enough, Catholic non-governmental organizations (NGOs) such as Caritas Internationalis, Sant’Egidio and FOCSIV seem to be behind the curve when compared to the Church hierarchy. The NGOs have generally clamored for more foreign aid but have not addressed core issues as bio-fuels and biotechnology.

Even secular NGOs such as Oxfam and CARE are beating them to the punch and have even called for the elimination of trade-distorting subsidies, export restrictions and price controls.

It is difficult to generalize about such as complex international problem and about a Church of 1 billion people. But it is a shame that Catholic NGOs need to catch up not only with their fellow Catholics as well as their fellow humanitarians.

“The challenge of climate change is at once individual, local, national and global. Accordingly, it urges a multilevel coordinated response, with mitigation and adaptation programs simultaneously individual, local, national and global in their vision and scope”, stated Archbishop Celestino Migliore, representative of the Holy See, at the 62nd session of the U.N. General Assembly, which took place earlier this month. The theme of the session was “Addressing Climate Change: The United Nations and the World at Work.”

Much attention is being given to climate change in the wake of EU President Jose Manuel Barroso’s new climate control plan. President Barroso’s proposal, released in January, intends to control greenhouse gas emissions through heavy legislation. The “20/20/20 by 2020” goals are ambitious; cut greenhouse gas emissions by 20%, produce 20% of its energy from renewable sources, and increase energy efficiency by 20% no later than the year 2020. The EU intends to lead the way in implementing greener energy systems, despite the heavy criticism it has drawn from some of its chief member states, namely France and Germany.

Big business is getting in on the renewable energy bandwagon. General Motors, for example, has announced plans to design at least half their vehicles to run on ethanol.

Meanwhile, in the media reports keep coming concerning the uncertainty that biofuel hype is going to have the desired long-term effect for global warming. Experts argue that the production of biofuels may give off cleaner emissions, but will require more energy to manufacture. Economists are eyeing rising food prices -especially corn- with worry. Demonstrations over the price of staple foods in Mexico and Indonesia last summer were attributed to the U.S. trial in promoting ethanol at the gas pump.

The Vatican repeatedly affirms that man is responsible for the environment. “Consumers must be aware that their consumption patterns have direct impact on the health of the environment,” Archbishop Migliore said at the U.N. “Thus through interdependence, solidarity and accountability, individuals and nations together will be more able to balance the needs of sustainable development with those of good stewardship at every level.”

Nevertheless, responsibility towards the environment does not usurp responsibility towards one’s fellow man, and this is implicit in Archbishop Migliore’s address. While President Barroso and the EU, worry themselves about what to do with climate change, poor countries may be watching their daily bread disappear into gas tanks and industrial energy due to ill-advised legislation and propaganda. Lack of regard for scientific input and global economic effects is contemptible, no matter how officials may applaud their green conscience.