Thursday, December 04, 2008

Energy v. Food: Bio Ethanol and the International Food Crisis

“The competition for grain between the world’s 800 million motorists, who want to maintain their mobility, and its two billion poorest people simply trying to survive, is emerging as an epic issue.”[1]

For more than 50 years, the real price of major food crop commodities such as maize (corn), wheat, soybeans, rice and wheat have steadily decreased[2]. However, the past two years have seen an abrupt rise in commodity prices, from 2007 to 2008, the average price of corn increased by 60%, soybeans 76%, wheat 54%, and rice 104%.[3] It is worth noting that many nations in the world rely on these commodities as a principal source of sustenance: “Low cost grains historically have been a dietary staple in the poorest countries. In low-income Asian countries, grains account for an average of 63% of the diet: in North Africa and Commonwealth of Independent States, about 60%. In Sub Saharan Africa, the region most vulnerable to food insecurity, grains account for nearly half of the calories consumed.”[4]
In response to the food hikes, food riots have occurred in many developing countries, including Burkina Faso, Cameroon, Ivory Coast, Egypt, Haiti, Indonesia, Senegal and Somalia. According to the United Nations (UN) Food and Agriculture Organization (FAO), at least 40 nations are facing food crises.[5] The increase in international food prices, threatens to undo what has been steady progress in reducing global hunger: “Several studies by economists at the World Bank and elsewhere suggest that caloric consumption among the world’s poor declines about half of one percent whenever the average price of all major food staples increases by one percent. When one staple becomes expensive, people try to replace it with a cheaper one, but if the prices of nearly all staples go up, they are left with no alternative….That means that 1.2 billion people could be chronically hungry by 2025 – 600 million more than previously predicted.”[6]

There are a number of factors that have contributed to the increase in food prices. Long term increases in developing nations’ growth and income have contributed in increasing demand for food. This coupled with lower agricultural investments, has meant that demand has increased, without a concomitant rise in output.[7] In the medium to short term, there have been weather disruptions, that have reduced production in some of the most fertile regions of the world (Australia, Ukraine), this coupled with increases in the cost of energy, has had a deleterious impact on food prices.[8] But most critical has been the impact of increased reliance on biofuels, and bioethanol in particular. According to an analysis done by the International Food Policy Research Institute (IFPRI), 30 percent of the recent surge in food prices can be attributed to biofuel production: “The increased biofuel production during the period [2000 – 2007], compared with previous historical rates of growth, is estimated to have accounted for 30 PERCENT of the increase in weighted average grain prices.”[9] Of particular concern is grain-based ethanol, the variety most utilized in the United States: “Ethanol produced in the U.S. is derived mostly from corn. Hence, the primary consequence of an increase in the demand for ethanol as a gasoline fuel additive is an increase in the demand for corn.”[10]

The increase in oil prices, as well as, a political push to find alternatives to foreign oil, coupled with a drive to mitigate the harmful effects of fossil fuels, has led to bioethanol becoming a competitive alternative source of energy.[11] However, the increase in ethanol has not only been buoyed by market forces, it has been enhanced by governmental action. The U.S. government has since the 1970’s (and especially since 2004) mandated a substantial increase in the amount of bioethanol produced and used. For example, the Energy Policy Act of 2005 required that 5.8 billion gallons of biofuels be blended with gasoline by 2008, with an increase to 7.5 billion gallons by 2012. The Energy Independence and Security Act of 2007, increased the targets to 9 billion by 2008 and 36 billion by 2022.[12] The mandates, coupled with tax credits (currently 51 cents for every gallon produced) and tariffs on imported sugar cane based ethanol (currently at 54 cents per gallon), have served to turbo charge the domestic bioethanol industry.[13] Considering that most of the bioethanol produced in the U.S. is corn-based, and taking into account that it would take 450 pounds of corn to fuel a 25 gallon tank with ethanol, enough corn to satisfy the caloric needs of an individual for a year[14], the competition that Mr. Brown (footnote, 1) spoke of comes into sharp relief. By putting pressure on global supplies of edible crops, the surge in ethanol production has translated into higher prices for both processed and staple foods around the world.

To lessen the impact of corn-based ethanol on world food prices, it is incumbent on the U.S. government to focus on developing long-term non-food alternatives to the energy crisis, as Runge and Senaur note: “Washington’s fixation on corn-based ethanol has distorted has distorted the national agenda and diverted attention from developing a broad and balance [energy] strategy.”[15] Removing the anti-competitive tariffs on cheaper and more efficient Brazilian ethanol would be a good start.[16] There should also be a reduction in the subsidies and mandates, allowing corn-based ethanol to compete with other alternatives, as well as, developing other non-food alternatives such as cellulosic ethanol.

These measures will only mitigate the impact of bioethanol on food prices, they do not resolve the long-term effects of increased population and lower agricultural investment. To deal with the longer term causes of tighter food markets, it shall be necessary for developed nations to assist developing nations in the development of efficient agricultural sectors: “It is even more critical to focus on increasing agricultural productivity growth, and improving developing country policies and infrastructure related to the storage, distribution, and marketing of food.”[17] As the global populations expand, and incomes rise, the need for sustainable and robust food markets shall be of paramount importance. Taking steps to increase agricultural productivity is crucial.

The current food crisis has long-term causes, such as increased global demand, exacerbated by declining agricultural investment. However, the rise in bioethanol production (and its attendant pressure on grain markets) has had an unwelcome impact, especially on nations that rely on grains as major sources for caloric intake. It is critical for developed nations to find non-food alternatives to there growing need for oil substitutes, alternatives that shall have little to no impact on world food prices. However, it is also incumbent on all nations of the world to boost agricultural investment, allowing for increased and efficient food production. Only long-term changes to agricultural production can guarantee that a chronic food crises is forestalled, and the anti-hunger gains of the past twenty years maintained.

[1] Lester Brown, president World Watch Institute, as quoted in: Vidal, John: “The Looming Food Crisis”… Retrieved 08/30/2007
[2] Cassman, Kenneth, Liska, Adam: “Food and Fuel for All: Realistic or Foolish.” Agronomy and Horticulture Department. University of Nebraska-Lincoln
[3] Runge, Ford, Seanauer Benjamin: “How Biofuels Could Starve the Poor.” Foreign Affairs, May/June 2007, p. 2
[4] Rosen, Stacey, Shapouri, Shahla: “Rising Food Prices Intensify Food Insecurity in Developing Countries.” Amber Wave, Vol. 6, issue 1. Feb 2008, p. 2
[5] Rosegrant, Mark: “Biofuels and Grain Prices: Impacts and Policy Responses.” International Food Policy Research Institute, May 7, 2008. p, 1
[6] fn 3. p, 6
[7] Elliott, Kimberly: “Biofuels and the Food Price Crisis: A Survey of the Issues.” Center for Global Development, Working Paper 151, August 2008. p. 5
[8] fn 3. p, 2
[9] fn 5. p, 2 Emphasis in original
[10] Byrge, Joshua and Kliesen, Kevin: “Ethanol: Economic Gain or Drain?” The Regional Economist. July, 2008. p, 7
[11] ibid, 6
[12] ibid, 6
[13] fn 7. p, 11-13
[14] fn 3. p, 2
[15] ibid, 7
[16] Elliot usefully points to studies that have shown that sugar based ethanol (aside from its lower impact on overall grain and food prices) is three times cheaper and provides up to ten times more energy than corn based ethanol. Fn 7. p, 15
[17] fn 5. p, 3