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Food vs. Fuel

June 13, 2008

The Fuel vs. Food Fight Takes a Turn…Towards Real Data

Fair and Balanced: Ethanol/biofuels production has a small impact on food prices and lowers gasoline prices

“The answers that I have received from the Departments of Agriculture and Energy indicate that U.S. biofuels policy explains between 4 and 5 percent of the 45 percent global increase in food prices in the last year.  At the same time, biofuels have increased the U.S. fuel supply and are reducing the prices that Americans pay at the gas pump by between 20 and 35 cents per gallon." -- Opening statement of Senate Committee on Energy and Natural Resources Committee Chairman Senator Jeff Bingaman, Hearing on the Relationship Between U.S. Renewable Fuels Policy, Food Prices, June 12, 2008

"It is clear, however, that biofuels are already moderating gasoline prices. That impact is likely to grow substantially as more biofuels come to market. Our preliminary analysis further suggests that current biofuels-related feedstock demand plays only a small role in global food supply and pricing. Moreover, the impact of biofuels on U.S. consumers is even smaller since the farm price of commodities accounts for less than twenty percent of U.S. consumers' food costs." In response to information requests from Senate Committee on Energy and Natural Resources from Secretary of Energy Samuel W. Bodman and Secretary of Agriculture Edward T. Schafer, June 11, 2008.

The Senate Committee on Energy and Natural Resources held a Full Committee Hearing to receive testimony on the relationship between US renewable fuels policy and food prices (SD-366) Thursday, June 12, 2008.  You can View Archive Webcast or get copies of the testimony at the end of this commentary.

The hearing was in response to a letter from the Committee (Download letter_to_bodman_and_shafer_re_biofuels_05_12_08.pdf)  to the Secretaries of Agriculture and Energy asking them to quantity the impacts of the federal biofuels (biodiesel and ethanol) program on consumer food prices.  The complete response from DOE Secretary Bodman and USDA Secretary Schafer can be downloaded in a PDF here (Download Chairman_Bingaman_Signed_w_Enclosure.pdf) and they are summarized in Chairman Bingaman’s opening statement below.

However, there was one missing piece to yesterday’s effort to investigate the price increase in food puzzle – what is the impact of oil price increases on food prices and the profitability of grocery manufacturers?  Round II -- Food vs. Fuel vs. Oil?

Relationship Between U.S. Renewable Fuels Policy, Food Prices
“Thank you all for coming today to discuss our nation’s biofuels policy, and how that policy is affecting domestic and global food prices.  The recent increase in commodity prices, with food and fuel prices at historic highs, highlights the importance of getting our policies right.  I called today’s hearing in an effort to help us do just that: to make sure we are getting our biofuels policy right.

Last month, I asked the Secretaries of Agriculture and Energy a series of questions about the impact of the Renewable Fuel Standard on domestic and international food and fuel prices.  Those questions were intended to establish some of the facts on this issue, so that we could base today’s discussion on facts, rather than the agenda-driven calculations that we see more often than not. 

The answers that I have received from the Departments of Agriculture and Energy indicate that U.S. biofuels policy explains between 4 and 5 percent of the 45 percent global increase in food prices in the last year.  At the same time, biofuels have increased the U.S. fuel supply and are reducing the prices that Americans pay at the gas pump by between 20 and 35 cents per gallon. 

As we continue on this path toward expanding our alternatives to gasoline and reducing its cost, we obviously need to find a way to eliminate any impact on the global food prices.  The intent of the Renewable Fuel Standard that was enacted in December 2007 is to move beyond our current technologies, to technologies that have no implications for our food supply. 

I think the critics of our current biofuels policy do not question the validity of our end goal of a healthy second-generation biofuels industry, but rather question our path for arriving at that end goal.  Our current path does require increased use of existing biofuels, including corn ethanol and soy-based biodiesel. 

I am concerned that altering that path now would not only be unfair to the industry that is responding to the government policies that have already been put in place, but also would have negative implications for second-generation fuels.  It is a fact that many of the companies that are expected to be next-generation biofuel industry leaders, especially for cellulosic ethanol, are current industry leaders in corn ethanol production.  To hurt those companies’ bottom lines now would endanger their investments in expanding their business to include next-generation production. 

I also suspect that investment in other kinds of next-generation technology would suffer, as investors would feel less confident of Congress’s commitment to its biofuels policies.  I believe that many next-generation fuels hold great promise for further diversifying our fuel supply.  As we diversify away from biofuel feedstocks that compete with our grain supply, we also diversify the geographic production areas beyond the current base in the Midwest.

In my home state of New Mexico, which has no corn ethanol production, limited sorghum-ethanol production, and very small amounts of biodiesel production, is an example of how the geography of biofuels production can change.  We are hopeful that we will be home to the country’s first biobutanol plant, which could be located near Portales, New Mexico, and could use sweet sorghum as a feedstock.  We also understand that New Mexico is one of the most promising states in the U.S. for large-scale algae production, which we will hear more about in today’s hearing.  We need the market certainty that comes with the existing renewable fuels mandate in order to realize the benefits of this next-generation industry.

At the same time, I do think we need to be mindful of any unintended consequences of our biofuels policy.  No one wants our biofuels policy to increase the prices that Americans are paying at the grocery store – although I think we can agree that this domestic price increase is to some degree offset by the savings we’re seeing at the fuel pump.  But we must also ensure that our policies, including but not limited to our biofuels policies, are not negatively impacting the world’s poor, who are most vulnerable to food price increases.  I take seriously the United Nations call for further study on the topic of biofuels, and look forward to constructive thoughts on how we can create a more sustainable global biofuels industry." – Opening statement of Senate Committee on Energy and Natural Resources Committee Chairman Senator Jeff Bingaman, June 12, 2008.

Response from Secretary of Energy Samuel W. Bodman and Secretary of Agriculture Edward T. Schafer (excerpts from the letter are below).

"The food and fuel pricing issues about which you have raised questions are complex. We would again caution, therefore, against hasty judgments driven by highly questionable, agenda-driven calculations, some of which have been featured prominently in the popular press. Many analysts both within and outside of government are currently working to model these questions, and the one certainty is that our data will improve substantially in the months ahead.

Our shared vision is a sustainable domestic biofuels industry centered in rural America.  To that end, both our agencies as well as the Federal Biomass Research and Development Board, co-chaired by the Department of Agriculture's Under Secretary for Rural Development Tom Dorr and the Department of Energy's Assistant Secretary of Energy Efficiency and Renewable Energy Andy Karsner, are collaborating to build an integrated biofuels action plan. In order to achieve these goals, continued private sector investment is needed. Creating a stable, predictable policy environment for investors, as Congress did with the expanded Renewable Fuels Standard, is essential to scaling our biofuels use and deploying next-generation biofuels. Efforts to repeal that mandate would hinder progress toward reducing our dependence on imported oil and reducing greenhouse gas emissions.

At the same time, our agencies are committed to collecting and presenting accurate data, projecting potential impacts, and initiating the necessary and appropriate actions to ensure the sustainable growth of biofuels. To that end, both of our agencies have significantly ramped up our analytical efforts to ensure that we proceed with caution but also determination. Our agencies will continue to work closely with the Environmental Protection Agency as we undertake our respective responsibilities under Title II of the Energy Independence and Security Act of 2007."

The complete answers to the six questions below are contained in the full DOE/USDA response which is available in PDF download here Download answers_from_doe_and_usda.pdf .

Question 1: How has increased U.S. ethanol and biodiesel consumption affected domestic agriculture, and domestic food prices?

Question 2: Has increased ethanol and biodiesel consumption in the United States contributed to increased global prices for agricultural goods? And if so, to what extent?

Question 3: How might increased biodiesel consumption, as required by EISA beginning in 2009, affect domestic and international food prices?

Question 4: How has increased ethanol and biodiesel consumption affected gasoline and diesel prices?

Question 5: What prices levels for gasoline and diesel fuel would be expected if biofuels were removed from the market, both in the short-and long-term?

Question 6: What effects are biofuels expected to have on gasoline and diesel markets as consumption increases to meet the targets laid out in EISA?

Testimony of Witnesses 

The Honorable Alexander Karsner - Assistant Secretary for Energy Efficiency and Renewable Energy, U.S. Department of Energy --- Dr. Joseph Glauber - Chief Economist, U.S. Department of Agriculture --- Dr. Joe Outlaw - Co-Director of the Agricultural and Food Policy Center, Texas A&M University (not provided) --- Dr. Joachim von Braun - Director General, International Food Policy Research Institute --- Dr. Jason Pyle - Chief Executive Office, Sapphire Energy --- Mr. Jack Huttner - Vice President of Biorefinery Business Development, Genencor.

May 29, 2008

A Very Memorial Day: Ethanol Lowers Gasoline & Oil Prices, Oil Imports, and Food Prices

The addition of ethanol into the U.S. gasoline pool lowers gasoline and crude oil prices by 15% -- therefore -- ethanol is actually lowering the price of food too.

“…the billions of gallons of ethanol are moderating oil prices by "easing energy bottlenecks, Oil prices would be at least 15% higher than they are, if not for today's output of ethanol.” -- Francisco Blanch, head of global commodity research at Merrill Lynch.

For decades proponents of alternative fuels and ethanol have claimed “in a free market adding an additional supply of finished product should lower gasoline prices.”  In addition, the federal government tax incentive (i.e., a lower tax on cleaner domestic fuels) should also insure ethanol could be sold to oil companies that claim the tax incentive at a lower price than gasoline – and possibly pass it along to the consumers.  One out of two is not bad.

Based on the Merrill Lynch analysis, lowering the price of world crude oil by 15% is worth $19.50 per barrel when the record was $130 per barrel. With world oil demand estimated at 87 million barrels per day – that is a savings to world oil users of $619 billion.  That’s a lot of bread in any currency!

This Memorial Day 2008, after thirty years of debate, we have 33 multi-million dollar IndyCars fueled with 100% ethanol racing around the track, and private and government analysts are validating and accepting the fact that ethanol supplies are helping to lower gasoline and crude oil prices, and reduce crude oil imports.

Do you want to help lower gasoline and food prices?

Ladies and gentlemen -- Start Your Flexible Fuel Vehicle Engines!!

Biofuels are playing "a critical role" in satisfying world demand. Without them, "it would be much more difficult to balance global oil markets,"  -- Fatih Birol, chief economist of the Paris-based International Energy Agency.

Ethanol Lowers Gasoline and Crude Oil Prices
Lowering your $4.00 per gallon gasoline price by 15% (Merrill Lynch) is worth 60 cents per gallon.  Iowa State says in some regions its 40 cents per gallon lower and some others estimate the savings to be about 10 cents per gallon.  You pick, you do the math, you save money.  If you estimate that the average motorist drives 12,000 miles per year, and gets 22 miles per gallon, the savings is times 500 gallons per year -- and if you (and your family) drive a little more, you can use 1,000 gallons times the savings.  Any way you calculate it -- ethanol saves you dough.

Using pooled regional time-series data and panel data estimation, we quantify the impact of monthly ethanol production on monthly retail regular gasoline prices. This analysis suggests that the growth in ethanol production has caused retail gasoline prices to be $0.29 to $0.40 per gallon lower than would otherwise have been the case. The analysis shows that the negative impact of ethanol on gasoline prices varies considerably across regions. The Midwest region has the biggest impact, at $0.39/gallon, while the Rocky Mountain region had the smallest impact, at $0.17/gallon. The results also indicate that ethanol production has significantly reduced the profit margin of the oil refinery industry. The results are robust with respect to alternative model specifications. Iowa State University

A study released this month confirms Missouri drivers are saving money at the pump thanks to ethanol. Research by John Urbanchuk, of the economic consulting service LECG, concludes that drivers in Missouri are expected to save nearly 10 cents per gallon due to the 10 percent ethanol standard that went into effect this year in the state. Extrapolated to reflect that Missouri drivers used over 2.9 billion gallons of gasoline in 2007, the research means statewide savings to consumers of more than $285 million in 2008.

American Farm Bureau Federation Economist: Without Ethanol Blending, Fuel Could Cost Ten Cents More Per Gallon

The high price of oil and gas is driving up the cost of nearly all consumer products, but the ethanol industry helps keep the Nebraska economy strong amidst nationwide inflation.  A recent study by Creighton University economist Ernie Goss found that the ethanol industry and higher ag commodity prices have boosted the Midwest economy while much of the country faces an impending recession. The production and use of ethanol strengthens Nebraska’s economy while lowering fuel costs. Ethanol blended fuels saved Nebraska consumers more than $70 million during 2007.

Ethanol Lowers Crude Oil Imports
The trend [in lower crude oil imports] was set to continue as people adjusted to high oil prices and the impact of the Energy Independence and Security Act, which became law in December 2007.  The 1970s is the last time we saw any significant decline in net import dependency in the US. It shows that markets do work, policy changes do work, technology does work.  The EIA expects the energy act to help boost biofuel production from 8bn gallons this year to at least 32bn by 2030, while prompting a 40 per cent efficiency improvement in new cars from 2020. -- Guy Caruso, head of the US Energy Information Administration

Therefore…Ethanol Lowers Food Prices
As detailed in an earlier Clean Fuels Blog April 21, 2008 The Missing Link in the Food vs. Fuel Fight

If ethanol is lowering the price of gasoline consumers use to get to the store, and it is reducing the price of petroleum products farmers use to produce food, and it is reducing the cost of diesel that distributors rely on to get food to market, and it is reducing the cost of energy in the store -- then ethanol has to be lowering food prices. So why are food prices increasing?

Has ethanol contributed to the surge in food prices? Not very much, concludes a group of agricultural economists at Texas A&M University in an April 10, 2008 report from the school's Agricultural & Food Policy Center. "The underlying force driving changes in the agricultural industry, along with the economy as a whole, is overall higher energy costs," the researchers conclude, not biofuels.

Food vs. fuel a global myth, chicagotribune.com, By Robert Zubrin and Gal Luft, May 6, 2008
In recent weeks, a flood of reports and statements has claimed that the world's biofuel programs—in particular the U.S. corn ethanol effort—is starving poor people around the globe. Even the UN's special reporter for the Right to Food decried biofuel production as "a crime against humanity."  It seems so obvious: With so much corn being turned into fuel, food shortages must inevitably result, and biofuel programs must be the cause. However, that's completely untrue.

Here are the facts. In the last five years, despite the nearly threefold growth of the corn ethanol industry (or actually because of it), the U.S. corn crop grew by 35 percent, the production of distillers grain (a high-value animal feed made from the protein saved from the corn used for ethanol) quadrupled and the net corn food and feed product of the U.S. increased 26 percent.  Contrary to claims that farmers have cut other crops to grow more corn, U.S. soybean plantings this year are expected to be up 18 percent and wheat plantings up 6 percent. U.S. farm exports are up 23 percent. America is clearly doing its share in feeding the world.

Agriculture is not a zero-sum game. There are 800 million acres of farmland in the U.S., and only about 30 percent of it is actually being used to grow anything. As a result of the ethanol program, the corn price received by farmers doubled over the last five years, causing a huge increase in the amount grown in terms of acreage and yield.

The increased demand for food from the hundreds of millions of people in China and India rising out of poverty and moving to a more calorie-rich diet affects the price of food the most. Second is the price of fuel. Higher fuel prices increase the cost of production, transport, wages and packaging, the main cost of retail food. For example, a $3 box of cornflakes contains 15 ounces of corn that cost 8 cents when bought from the farmer. So, farm commodity prices have almost no effect on retail prices. But the effect of oil price increases can be huge.

Which brings us to the real culprit: the Organization of the Petroleum Exporting Countries. This year, with OPEC-rigged oil prices exceeding $100 a barrel, the U.S. will pay $800 billion for its oil supply and the world as a whole will pay $3.2 trillion. These figures are both up a factor of 10 from what they were in 1999 and represent a huge regressive tax on the world economy.

Maybe by Memorial Day 2008 ethanol critics will accept and validate the fact the American capitalistic spirit and can do ingenuity can provide food, fiber, fuel and healthier economy.

Food or Fuel? Maybe We Can Have Both  - Washington Post, By Warren Brown, Sunday, May 25, 2008; Page G02

May 14, 2008

Fair and Balanced: Biofuels, Ethanol, Food and the Future

Too many people are "flat out wrong" about blaming ethanol for all of the increases in food prices...and then there are others like Senator Dick Lugar (R-IN) that have a deep understanding of the multiplicity of the issues and also cares enough to share his knowledge and insights with others that are less fortunate.

Opening Statement for Hearing on Global Food Crisis

U.S. Senate Foreign Relations Committee Republican leader Dick Lugar made the following statement at today’s hearing on global food supply shortages:

I join in welcoming our witnesses to this hearing examining global food supply shortages and the U.S. response.  I applaud the Administration for its announcement on May 1 that it intends to increase food and development assistance by $770 million in addition to a pending supplemental request of $350 million, and the release of $200 million from the Bill Emerson Humanitarian Trust.

The U.S. Agency for International Development, the World Food Program, and the Food and Agriculture Organization estimate that people in nearly 40 countries are now facing food shortages and potential social unrest because of the increase in food prices and the decrease in the global availability of some cereal grains.

The current crisis has developed from a complex web of factors.  Expanding affluence in emerging economies like China and India has improved diets for hundreds of millions of people and led to increased global demand for food.  Simultaneously, the highest oil prices on record have driven up food costs all along the farm-to-market chain.   The surge in oil prices has increased transportation, packaging, and fertilizer costs; and provided the impetus for developing alternative fuels, such as ethanol.  We have also experienced droughts in some food exporting countries, expanded trade barriers, a weakening of the U.S. dollar, increased commodities speculation, and market-distorting subsidies.

These factors have come together to make the current food problem particularly acute.  But we should be clear that food shortages are likely to recur frequently if the United States and the global community fail to open agricultural trade and invest in agricultural productivity in the developing world.
                                                                                                                                                                   
Unfortunately, the United States and other international donors have de-emphasized assistance for rural development and agricultural productivity.  In 1980, agricultural projects accounted for 30 percent of the World Bank’s lending.  By 2007, they represented less than 13 percent.  U.S. foreign assistance for agriculture has declined from an average of a little over $1 billion annually in the 1980s to an average of $328 million since 2000.  Globally, only 4 percent of official development assistance from all donors in 2007 was allocated for agriculture.  This amounts to neglect of what should be considered one of the most vital sectors in the alleviation of poverty.  In fact, two new studies from the U.N. Department of Economic and Social Affairs show that funds spent in agriculture are more beneficial to economic growth than spending in other sectors.  The effects of the current food situation likely would have been ameliorated if more of the world’s poor farmers had access to better technology, titled land, small loans, extension support, and accessible markets.   

Beyond resources, we need a more constructive debate about biotechnology and agricultural trade.  World leaders must understand that over the long term, satisfying global demand for more and better food can be achieved only by increasing yields per acre.  In the 1930s, my father, Marvin Lugar, produced corn yields of approximately 40 to 50 bushels per acre.  Today, the Lugar farm yields about 150 bushels per acre on the same land in Marion County, Indiana.  The Green Revolution, from 1965 to 1985, saw the introduction of high yield seeds and improved agricultural techniques that resulted in a near doubling of cereal grain production per acre over 20 years.  But yields may have to be doubled or tripled again.

Increasing acreage under production or ending the use of biofuels will not satisfy the growth in food demand, and these steps come with serious environmental and national security costs.  We need a second green revolution that will benefit developed and developing nations alike.  In the context of global food shortages, Europe has to reexamine its opposition to genetically modified seeds that have the potential to dramatically increase yields.

Global food shortages also should prompt reconsideration of the protectionist world agricultural trade system and the harmful farm subsidies of Europe and the United States.  Even as we increase yields, we must scale back agriculture subsidies and trade barriers that raise prices and undercut many farmers in the developing world.  These policies are distorting agricultural trade and decision-making on a global scale and preventing many potentially productive farmers in the developing world from accessing markets.  In most cases, agricultural subsidies and trade barriers have no rational basis other than the protection of politically powerful constituencies.

The United States should seek commitments to double the percentage of agricultural assistance and to remove export barriers and import tariffs.  We should also enhance our leadership on agriculture research by maintaining support for a U.S. created network of global research centers. 

Some critics have singled out corn ethanol as the primary culprit in the food crisis.  They have called on Congress to scale back, or even halt, corn ethanol production.   In effect, they ask us to choose between feeding the hungry or producing biofuels.  But increased demand for corn-based biofuels is just one of numerous factors that have contributed to higher food prices.  Compared to last year’s 146 percent price increase for wheat and 70 percent increase for rice – neither of which is used for biofuels -- the 46 percent increase in corn was relatively modest.

While we should understand the impact of biofuels on food supplies, we must not lose sight of why our government is attempting to stimulate biofuel use.   Chairman Biden and I have held at least a dozen hearings in the last few years that have highlighted the extreme national security and environmental risks of our dependence on imported oil.  The United States deliberately undertook a program to develop biofuels because it is one of the best immediate responses to our acute energy vulnerability and to the problem of climate change.   Cutting ethanol production now would leave us even more vulnerable to the political whims of governments that control 80 percent of world oil reserves.  The enrichment of these governments obstructs many of our major foreign policy objectives, including our efforts to end the genocide in Darfur, stop Iran’s nuclear program, combat terrorism, and bring peace to the Middle East.  Rather than cutting production of ethanol, we should replace the current ethanol subsidy system with an oil-price floor that will provide assurances to long-term investors in all renewables.  And we should eliminate the import tariff on ethanol to admit supplies from Brazil made from sugarcane.

If corn biofuel production is curtailed, we will see additional pressure on global oil prices and a withering of the nascent biofuel distribution infrastructure.  This infrastructure is essential if we are to hasten the commercialization of cellulosic technology, which promises abundant ethanol from non-food sources like switchgrass and forest wastes.  Cellulosic technology has the potential to far outrun corn in the volume of ethanol produced, and it can do so at a lower cost.  Wide commercialization of cellulosic ethanol would radically improve the energy outlook for rural areas all over the world.

We should remember that the world’s poor are suffering not just from high food prices, but also from the staggering effects of $120-per-barrel oil.  Developing countries are more dependent on imported oil, their industries are more energy intensive, and they use energy less efficiently.  Fertilizer and fuel for agriculture machinery are dramatically more expensive.  Without a diversification of energy supplies that emphasizes environmentally friendly options, the national incomes of energy poor nations will remain depressed, with negative consequences for stability, development, disease eradication, and nutrition.

Senator Lugar is also the Co-chairman of the Clean Fuels Foundation's Ethanol Across America education campaign.

May 01, 2008

The Food vs. Fuel Debate Should Be Put Out to Pasture with the Rest of the Bulls…

President Bush, US government agencies, EU, Brazil, OECD, Consumers, Industry, Academia and Others Fight Back against Anti-Ethanol and Food vs. Fuel Critics

Commentary, Perspective and Research

The raging media debate and flood of accusations about food prices increasing primarily from the United States’ biofuels program (e.g., ethanol, biodiesel, cellulosic-ethanol, and other sources) is a classic case study of how a predatory and negative misinformation campaign can be waged with the intent to harm, protect market share, and mislead journalists about a very complex issue.

The following information is not our attempt to invalidate the fact food prices are increasing and that ethanol has a small impact, or that the current world food supply situation is not bad or sad.  The following extensive research collection is presented to you to validate the claims from a multitude of experts from diverse fields that ethanol is really just a small factor compared to other factors that are driving up the price of food.  Some controllable and uncontrollable factors like the skyrocketing price of oil and its impact on weakening the dollar, drought in wheat producing areas, increased food demand, ineffective agricultural polices in some countries, export restrictions by the major rice producers (there is no connection to rice), and stock market speculation.  Ethanol production is actually helping the food chain by developing more supplies of corn, animal feed products, and U.S. corn exports are at record levels. Some critics claim getting rid of the biofuels program is something the U.S. can control – that would be jumping from the frying pan into the fire -- with the help of a big push.

In a report entitled “Big Oil vs. Ethanol: The Consumer Stake in Expanding the Production of Liquid Fuels", Consumer Federation of America charges that: “Major oil companies have now declared war on a key policy that can help alleviate the shortage – the expanded production of alternative transportation fuels, particularly biofuels, like ethanol."

Who could be fueling this food vs. fuel debate and what is the market share battle over? The 165 billion gallon annual market for transportation fuel sold in the United States -- that is worth over one half a TRILLION dollars.  Talk show hosts, journalists, oil state politicians, and even bartenders and waiters are nonchalantly blaming ethanol for the increase in food prices as sure as people once thought the world was flat.  The sad news is that parroting that false claim as fact is just as irresponsible as yelling fire in a theater to get a seat.  The nation needs ethanol to because it is the only thing that is working to curb oil imports and reduce gasoline prices. 

Chicken Little?

National Chicken Council Commends Texas Governor for Filing First Request for Waiver of National Renewable Fuel Standard

WASHINGTON, April 25 /PRNewswire-USNewswire/ -- Texas Governor Rick Perry is to be congratulated for filing the first request for a waiver of the Renewable Fuel Standard (RFS) with the U.S. Environmental Protection Agency to reduce the amount of corn being used to produce ethanol, the National Chicken Council said today.

Or is it just processed chicken feed?

“Critics who blame high food prices on US policies they say encourage corn to be diverted from food and livestock feed use to alternative fuels are "flat out wrong," Ed Schafer, Secretary, U.S. Department of Agriculture

Since the passage of the Energy Policy Act of 2005 (which contained the nation’s first renewable fuel standard) and the announcement of  the government’s plan to reduce crude oil imports and gasoline use by 20% there has been an onslaught of anti-ethanol articles appearing in the media.  There was a quick ceasefire between the signing of the Energy Independence and Security Act of 2007 in December of 2007 and the Farm Bill debates, and then the food vs. fuel smear campaign started again for the nth time just as the debate over incentives for cellulosic ethanol picked up.

A new report....The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry....

After 30 years of watching this negative public relations campaign it has become as predicable today as the expecting the news of oil prices to climb and the stock market to corresponding fall.

The first and most important component to understand in this debate is the Energy Independence and Security Act of 2007 which contains the renewable fuel standard.  The Act is five months old and it takes 24 months to build an ethanol plant.  The national renewable fuels standard (similar to the unleaded gasoline standard) requires refiners to blend 36 billion gallons of ethanol and other advanced biofuels by the year 2022.  Here are a few provisions in the Act that create fairness and balance and also to protect the nation from too much corn being as a feedstock for ethanol.

  1. The Act (law) placed a cap on the amount of corn (ethanol production uses field corn not human grade food corn) that can be turned into ethanol at 15 billion gallons. Note: The Act further restricts feedstocks of starch from corn, because ethanol production only uses the starch portion of the grain and sells the remaining high protein feed into the animal feed market.  U.S. corn yields have doubled in the past 40 years and are expect to double again in the next 20 years.
  2. There are many impact study requirements, safety values and off ramps in the Energy Independence and Security Act of 2007 that can be executed should the program experience a glitch – that is a call by the government – not by those fighting over the domestic transportation fuels market.

The Act is not perfect; it has the ability to evolve, just like our thinking about biofuels and its realistic impact food prices.

Agriculture Organization of the United Nations predicted late last year that biofuel production, assuming that current mandates continue, would increase food costs by 10 to 15 percent.

When people understand the facts they'll see that we're only using the starch portion [of the corn]. We're actually increasing feed availability and we're lowering feed costs. Don Endres, CEO, VeraSun

The majority of world leaders and experts (interested in change of status quo) have responded and biofuels are not longer going to be considered the “easy culprit to blame” in the battle over the U.S. transportation fuel market and the rising cost of everything.  The consumers need to keep their eye on what used to be The Prize.  It is clearly fuel vs. food and that should be no surprise.

Bureau of Labor Statistics March 2008

Unadjusted percent change to March 2008 from March 2007
Food -- 4.5%
Food at home (cereals, meats, fruits, etc.) -- 4.7%
Transportation -- 8.2%
Fuel oil -- 40.2%
Motor fuel -- 26.4%
Source: American Coalition for Ethanol

And then you need to ask yourself...food price increases compared to what?

In 1949, the price of corn averaged $1.24 per bushel. On April 21, 2008, corn futures were going for $6.13 per bushel on the commodities market. That's an increase of 394 percent in 59 years. Now compare that to oil. In 1949, the price of oil averaged $2.54 per barrel. On April 21, 2008 oil was going for $113.70 per barrel. That's an increase of 4,376 percent in the same 59 years. Petroleum products figure prominently in the price of food -- for agricultural production, packaging and transportation. So, in case anyone doubted it, with food inflation, the price of oil is a big fat elephant in the room. -- Ethanol Promotion and Information Council

The factual evidence mounting against the food vs. fuel critics is overwhelming.  The support for biofuels is overwhelming.  The negative impacts from stopping the nation’s only successful alternative fuel program could be overwhelming too.

The following collection of articles, testimonials, and research studies is our effort to help set the record straight and support those genuinely interested in learning more about the real connection between food prices and national renewable and energy security policies.

Bumper stickers are available -- It’s the Oil [don’t let'm treat you as] Stupid.

Americans Believe Higher Oil Prices and Increasing Worldwide Demand For Food Major Causes of Higher Food Prices: Few Cite Increased Ethanol Production as a Factor.

Other facts on Food vs. Fuel Myths


Perspective On the Issue

Saudi Oil Minister Blasts Biofuels, Domestic Alternative Fuels, Cindy Zimmerman, 4/14/2008
Saudi Arabia’s Minister of Petroleum and Mineral Resources last week denounced ethanol as an alternative to petroleum-based motor fuels. In a speech to the International Oil Summit in Paris, Minister Ali bin Ibrahim Al-Naimi said, “Let’s be realistic, ethanol and biofuels will not contribute to the protection of the global environment by reducing (carbon dioxide) emissions, they will not increase energy security, nor will they reduce dependency on fossil fuels to any appreciable degree.” “Their cultivation eats into the human food supply, reduces the absorption of carbon dioxide as forests are cut down, has not improved the security of energy supply and has not reduced petrol prices,” he added.

Ethanol Lowers Gasoline Prices 29-40 cents per gallon -- Iowa State University Study

Saudi Arabia: Fossil Fuel to Serve Global Energy Needs for 50 years, Arab News - 04/11/2008

PARIS, April 11, 2008 — Minister of Petroleum and Mineral Resources Ali Al-Naimi said yesterday he expects fossil fuels will supply the bulk of global energy needs for at least the next 50 years.

Experts: Global Oil Production May Peak Soon, Petroleum Iran, Live Science, Ker Than, 4/28/06

With the cost of oil at or near record levels and gasoline prices hovering around $3 a gallon, the government is advocating new measures to soothe growing public concern over rising prices at the pumps. But the fixes are only temporary and largely symbolic, scientists say. They will do little to address the more serious threat of what will happen when demand for oil outstrips the ability to produce it. And that's an inevitable problem that could be just around the corner, though nobody knows exactly when it will occur. In a speech earlier this week, President George W. Bush recommended pushing back deadlines for the transition to cleaner gasoline additives such as ethanol, ramping up the number of oil refineries built and temporarily halting oil shipments into the nation's petroleum reserve. Each of these recommendations is aimed at making more gasoline available to consumers.

"I think that we have avoided taking the steps we should've taken in the 1970s to seriously invest in alternative energy technologies.  We haven't done anything for 30 years, basically, and now it's catching up with us. We are burning 31 billion barrels of oil a year worldwide, and to find that many barrels a year has just become impossible." Amos Nur, the Wayne Loel Professor of Earth Sciences at Stanford University

What the Iraq war will cost the U.S., CNN Money,  Lawrence B. Lindsey, 1/11/08

The bill for Iraq over the past five years is now approaching a cumulative $500 billion, or about $100 billion per year on average. Former White House economist Lawrence Lindsey.

Food Vs. Fuel Debate Research

President Bush, US government agencies, EU, Brazil, OECD, Consumers, Industry, and Academia Fight Back against Anti-Ethanol and Food vs. Fuel Critics

Issue Brief: The Impact of Ethanol Production on Food, Fuel Feed, Clean Fuels Foundation, Ethanol Across America Education Campaign, 8/08

Bush backs ethanol despite concern about food costs, By Russell Blinch, Reuters, 4/29/08
Washington - President George W. Bush said on Tuesday he is deeply concerned about high food prices but believes ethanol production is responsible for only a small part of food inflation.  "In terms of the international situation, we are deeply concerned about food prices here at home, and we're deeply concerned about people who don't have food abroad," Bush told a news conference.  He said the rise in food prices has been caused by weather, increased demand and energy prices, while only a small part is due to the production of corn-based ethanol. "And the truth of the matter is, it's in our national interest that we -- our farmers -- grow energy, as opposed to us purchasing energy from parts of the world that are unstable or may not like us."

USDA and DOE Secretary’s Defend Ethanol/Biofuels Program
For many decades, the U.S. has worked with farmers and the scientific community to increase crop yields, reduce the intensity of pesticide and fertilizer use, improve water productivity and promote conservation tillage that reduces erosion and sequesters carbon. Substantial progress continues in all these areas and was not sufficiently addressed. Last year alone our agencies invested more than $1 billion in research, development and demonstration of next-generation-biofuels production from nonfood feedstocks, which remains the core U.S. strategy.  Our government is committed to advancing technological solutions to promote and increase the use of clean, secure, abundant, affordable and domestic alternative solutions.  — Ed Schafer, U.S. Department of Agriculture and Secretary, and Samuel W. Bodman, U.S. Department of Energy Secretary April 21, 2008

International Energy Agency: Biofuels a 'critical' energy source,  UPI, April 26, 2008
"If we didn't have those barrels, I am not sure where we would be getting those half-a-million barrels (from)," IEA Deputy Executive Director William Ramsey said, adding that OPEC has said it would not increase supply.

EU Commission Stands Firm on Biofuels Goal, Reuters, Pete Harrison, 4/21/08

BRUSSELS, April 21 (Reuters) - The European Commission said on Monday it was standing by its target of getting 10 percent of its road transport fuel from crops and biomass by 2020, despite mounting criticism it could worsen food shortages. the spokesman said: "The answer is very simple -- no."

Brazil Lula Defends Biofuels From Growing Criticism, Reuters, By Raymond Colitt, April 16, 2008

President Luiz Inacio Lula da Silva defended Brazil's production of biofuels on Wednesday, rejecting criticism they are furthering a surge in global food prices and harming the environment. "Don't tell me, for the love of God, that food is expensive because of biodiesel. Food is expensive because the world wasn't prepared to see millions of Chinese, Indians, Africans, Brazilians and Latin Americans eat," Lula told reporters before speaking at a conference of the U.N. Food and Agriculture.

NEWS ANALYSIS, NEW YORK TIMES: Fuel Choices, Food Crises and Finger-Pointing, Andrew Martin, April 15, 2008
The Food and Agriculture Organization of the United Nations predicted late last year that biofuel production, assuming that current mandates continue, would increase food costs by 10 to 15 percent.  Ethanol supporters maintain that any increase caused by biofuels is relatively small and that energy costs and soaring demand for meat in developing countries have had a greater impact.

Senator Charles E. Grassley, Republican of Iowa, called the recent criticism of ethanol by foreign officials “a big joke.” He questioned why they were not also blaming a drought in Australia that reduced the wheat crop and the growing demand for meat in China and India.  “You make ethanol out of corn,” he said. “I bet if I set a bushel of corn in front of any of those delegates, not one of them would eat it.” The senator’s comments reflect a political reality in Washington that despite the criticism from abroad, support for ethanol remains solid.

USDA's Schafer reassures no rice shortage, Reuters, 4/25/08
US Agriculture Secretary Ed Schafer on Thursday sought to calm the frayed nerves of consumers, saying there was no shortage of rice in the United States even as a major outlet limited sales.  He also said the surge in rice prices to record highs at the Chicago Board of Trade, the world's largest grain exchange, could be attributed, in part, to speculation about future rice shortages. "We don't see any evidence of the lack of availability of rice. There are no supply issues," he told reporters after addressing a conference on agro-terrorism in Kansas City. "Part of the price issue is speculation because we're so close to capacity...that if something disrupts it like the weather pattern then you can start seeing some supply issues.

Schafer also addressed criticism that US subsidies for corn-based ethanol production was driving food price inflation around the world and reiterated an unwavering Bush Administration's stance in support of ethanol production. He said only about 25 percent of the corn crop goes to make ethanol and said that the forces driving rising prices in corn and other commodities had more to do with energy costs, increased consumption around the world and weather-related production problems.

Critics who blame high food prices on US policies they say encourage corn to be diverted from food and livestock feed use to alternative fuels are "flat out wrong," said Schafer.

OECD: Biofuel impact on farm prices overplayed, Reuters, Sybille de La Hamaide January 14, 2008

PARIS (Reuters) - The recent price rally in farm commodities such as grains, oilseeds and sugar beet can be attributed partly to higher biofuel demand but their share of the blame has been exaggerated, a top official of the Organization for Economic Cooperation and Development (OECD).
Loek Boonekamp, a division head in the Agro-food Trade and Markets Division at the Paris-based OECD, said the surge in farm product prices -- with cereals more than doubling last year -- would have happened even without the rise in biofuel production. “Closing your eyes and blaming the current high prices to biofuels is just too simplistic," he told the Reuters Global Agriculture and Biofuel Summit.

USDA Forecasts Happy Ending to Ethanol/Food Price Battle, By Lorraine Heller, 10/8/2007

The link between growing ethanol demand and higher food prices has been overstated, according to the US Agriculture Secretary, who forecasts that supply and price pressures will even out as markets 'do their work'. Addressing the Consumer Federation of America at the end of last month, acting Agriculture Secretary Chuck Conner said that despite short term difficulties, farmers are responding to rising commodity demands by adding acreage and boosting yields.

Yet Conner said that USDA economists believe this connection has been "overstated".  Ethanol demand, he said, "has been assigned more than its fair share of blame for what has been happening in our grocery aisles". In the first eight months of this year, retail food prices were about 3.6 percent higher on average that they were a year earlier. That is higher than the 2.7 percent average for the food price increases seen over the course of last three years, he said. The current forecast from USDA's Economic Research Service is that the consumer price index for food will be up for all of this year somewhere between 3.5 and 4.5 percent.  But the economists at ERS also expect these increases to moderate next year back to about 3 to 4 percent.

Economists at USDA, as well as economists at the University of Michigan, and in the private sector have forecast the impact of rising biofuels production, up to the level of 15bn gallons by the year 2015, of having a "modest" effect on future food prices, he said.

Thai PM lashes out at World Bank over Biofuel Criticism, Thomson Financial News , 04/22/08

Thai Prime Minister Samak Sundaravej Tuesday lashed out at the World Bank and the United Nations for criticizing biofuel producing nations for soaring food prices while sparing oil exporters.  Samak said he had set up two government committees to oversee the urgent issues of energy prices and food supply as he reassured Thais there was enough rice for domestic consumption.

Fuel’s Not Culprit on Price Increase, TWO VIEWS: Agriculture, energy policies collide in corn, Portland Tribune, Brent Searle, April 22, 2008

Whatever else one may criticize about corn ethanol, or biofuels in general, they are not the primary cause of recent food price increases.

  • A standard box of cornflakes contains approximately 10 ounces of corn. Even when corn is priced at $4 per bushel, a box of cornflakes contains less than a nickel’s worth of corn.
  • A can of soda contains less than 2 cents worth of corn sweetener.

Additional factors affecting food prices include:

  1. Low worldwide wheat prices the past several years have led growers everywhere to plant less wheat, which led to record-low wheat stocks, causing wheat prices to soar.
  2. Regional pests, diseases and other natural disasters all impacted fresh produce availability and price.
  3. Increases in labor costs, as state and federal minimum wages ratchet up — from farm to processing and the restaurant — affect food prices.
  4. Rising fuel costs, over $100 per barrel, make it more expensive to grow, process, refrigerate, and transport food from the producers to stores and restaurants.
  5. Personal choices — for example, organic milk costs nearly double conventional milk. Consumers are choosing to pay higher prices based on preferences.
  6. Dollar decline makes food imports more expensive at the store and creates greater demand for U.S. agricultural exports. Approximately 30 percent of fruits and vegetables consumed in the U.S. are imported.
  7. Corporate profits can be an excuse to hike prices. Kroger: fourth-quarter 2007 sales up 10 percent and profits up 18 percent. Safeway: sales up 3 percent, profits up 12 percent.

There isn’t a single study that has sorted out all these factors on total food price increases. However, given available data, I calculate the 4 percent to 5 percent increases in food prices during the last year can be broken down as follows:

  • 0.2 percent to 0.3 percent due to ethanol use of corn
  • 0.8 percent to 1 percent due to gasoline/fuel price increases
  • 3.5 percent to 4 percent due to other causes

Energy Costs, Not Ethanol, Driving Food Prices Higher, American Agriculturist, April 29, 2008

Pennsylvania's Governor Edward Rendell, stumping for his PennSecurity Fuels Initiative legislation still being debated in the state's legislature, contends that critics of corn-based ethanol and biodiesel are forgetting the real underlying reason for higher food costs – higher oil-based energy costs.

"What's been largely missing from this debate is that rising energy costs are driving the higher prices we see for all products, including the food on our supermarket shelves," he says. "It takes energy to harvest crops, process them and manufacture them, then ship them to the store. By reducing our dependence on conventional fossil fuels in favor of more cost-effective biofuels, we can help mitigate the effects of higher fuel prices on the food market while strengthening our economy and our national security," he adds.

Missouri Governor Blunt says ethanol not to blame for food cost: Many factors contribute to rising grocery prices, governor says, CHAD LIVENGOOD • NEWS-LEADER • 4/25/08

Gov. Matt Blunt says the state's ethanol mandate has nothing to do with the rising cost of food and feed for raising livestock. At a news conference in Springfield on Thursday, Blunt said soaring grocery bills are more due to higher energy costs for producing it and the "rapidly escalating worldwide demand for food." As more people on that planet "try to eat like Americans," Blunt said, "food's going to become more expensive.

However, the consequences of our nation's continued dependence on foreign oil are so far ranging and serious that I support mandates in the short run to help establish a market for renewable fuels."

New Studies About Food Prices and Ethanol/Biofuels

Why Your Food Dollar Doesn’t Stretch As Far - Higher Oil Prices and Surging Global Demand Primary Factors, Renewable Fuels Association, March 19, 2008

(Google Search: Study Available) In this climate of economic unease, some have seized upon the fears of millions of Americans and begun to aggressively and, in some cases, dishonestly blame the expansion of the American ethanol industry for higher prices in the grocery aisle. Cooler, impartial heads have studied the issue and discovered that several factors play a more significant role than ethanol in what Americans pay for groceries.

NCGA Executive Refutes Phony “Food versus Fuel” Issue, Jon Doggett, 4/18/08

(Google Search: Study Available) Appearing on E&E’s OnPoint television program, National Corn Growers Association (NCGA) Vice President of Public Policy Jon Doggett refuted the food and fuel arguments currently circulating in the media.  Doggett maintained that commodity prices are having very little impact on the price of food and cited oil prices as the more likely catalyst.
Doggett put the current corn and food prices into perspective. "Our trend line yields are going up significantly. We are using better seed corn than we've ever used before. Every year that gets better and better," said Doggett. "Our yields are going up exponentially and so I think we're going to have an opportunity to meet that demand, meet the demand in the world market, meet the demand for our traditional customers in the livestock industry, meet the demand for industrial uses, meet the demand for food.”

Informa releases report on food-versus-biofuel costs, Jan 23, 2008 10:38 AM, By David Bennett, Farm Press Editorial Staff

(Google Search: Study Available) Has the drive for more corn acres to produce ethanol caused a spike in U.S. food prices? Despite a year’s worth of noise backing such a connection, new analysis by Informa Economics has found the claims dubious. While comprehensive, the report (is unlikely to escape criticism as pro-ethanol interests commissioned it. In a Dec. 10 press conference announcing the report’s release, Informa employees preemptively pushed against such claims.
“We provide objective analysis,” said Bruce Scherr, Informa CEO. “We tell every client that if we do a study and the pills are bitter, so be it. We … aren’t guided by an end result the client wants … We have hundreds and hundreds of clients in every part of the agriculture food renewable energy and energy value chain. We haven’t got an axe to grind. Our interest is sustainable profitability and sustainable business liability for every sector and segment of the industry.”

Corn and Ethanol: Green, Getting Greener, Presentation by Rick Tolman, National Corn Growers Association, 2/26/08, FOOD AND FUEL

(Google Search: Study Available) Amid the growing and understandable concern about global food prices, some important facts are being overlooked in the rush to find ways to address the problem.

  1. First, the total U.S. supply of corn that is not used for ethanol production is actually growing. It is projected to grow by more than a billion bushels per year between now and 2015, according to the National Corn Growers Association.
  2. Second, oil prices drive food prices, because oil is used in food production, transportation and packaging. And oil prices would be even higher -- 15 percent higher -- if not for the impact of biofuels, according to Merrill Lynch commodity strategist Francisco Blanch.
  3. Ethanol is the only alternative fuel that is readily available today -- and it is critical to the development of other renewable fuels that will soon be made from things other than grain to further reduce our dependence on costly foreign oil.

The key is for well-meaning people to work together to find solutions to our food and energy needs -- not villains.

Attempt of Texas Governor to Opt of the nation’s Renewable Fuel Standard program foiled…
Texas A&M: Don't Blame Ethanol on Higher Food Costs, USAgNet - 04/14/2008

(Google Search: Study Available) A study released today by Texas A&M's Agricultural and Food Policy Center illustrates corn prices have had little to do with rising food costs, the National Corn Growers Association notes. The report, "The Effects of Ethanol on Texas Food and Fuel" also determined that relaxing the Renewable Fuels Standard (RFS) would not result in lower corn prices for livestock and poultry feeders.

Additional Testimonials, Facts and Related Issues

Christian Science Monitor, Letters to the Editor, . Doug Durante, Executive Director, Clean Fuels Development Coalition, 1/22/08

In response to your Jan. 18 editorial on rising grain prices: Naming ethanol as the main driver of rising food costs is misinformed.  Multiple studies have shown that a number of factors affect the cost of food, most notably labor, fuels, transportation, packaging, and other nonfarm costs. A study released in December of 2007 by a Memphis-based research firm shows that corn prices have minimal impact on the US Consumer Price Index for food, based on 20 years of price data.  Additionally, studies by the federal government have shown that one-third of the grain used in the ethanol process is maintained and goes back into the feeding cycle. Increases in corn yields will allow the US not only to meet fuel needs but also to increase both exports and reserves. The new US energy bill does require the use of 36 billion gallons of biofuels within the next 15 years. However, the majority of that must come from nonfood sources including wood chips, switchgrass, and other inexpensive and readily available biomass. These second-generation biofuels will provide a host of financial, environmental, and energy benefits in contrast to environmentally costly and increasingly expensive fossil fuels

Response to Business Week, The Global Grain Bubble, Doug Durante, Executive Director, Clean Fuels Development Coalition.

Blaming ethanol as the main driver of rising food costs is misinformed and inaccurate (“The Global Grain Bubble,” Jan. 18, 2008). Multiple studies have shown that a number of factors impact the cost of food, most notably labor, fuels, transportation, packaging and other non-farm costs. Additionally, a study released in December of 2007 by a Memphis-based commodity market research firm shows corn prices have minimal impact on the U.S. Consumer Price Index for food, based on 20 years of price data. Studies by the federal government have come to the same conclusion.  With regard to supply, one-third of the grain is maintained in the ethanol process which goes back to into the feeding cycle. Increases in corn yields will allow the US to not only meet fuel needs but increase both exports and reserves.

With respect to what the new US energy bill does, you need to do your homework.  While the new does in fact require the use of 36 billion gallons of biofuels over the next 15 years, the majority of that must come from non-food sources including wood chips, switchgrass and other inexpensive and readily available biomass. In processing these feedstocks, they have to demonstrate a substantial reduction in greenhouse gas emissions.  These second-generation biofuels will provide a host of financial, environmental, and energy benefits over the imported and polluting oil that has such a stranglehold over much of the globe.

General Motors Leader Refutes Biofuels Critics, John McCormick, AutosInsider Sunday, April 20, 2008

BEIJING -- Politicians' claims that biofuels are driving up food prices are "shockingly misinformed," said General Motors CEO Rick Wagoner. Speaking at the Beijing auto show, Wagoner said the food price issue has become "a cause celebre without reason. Higher fuels costs are a far bigger driver of food prices."  Wagoner noted that a dramatic escalation of ethanol use derived from corn could drive up food prices, but that situation is not even close to reality. "There are ways to produce ethanol using the cellulosic process and with winter crops that would not affect the food supply," he said. GM is a leading advocate of ethanol or E85 use, producing millions of vehicles in the US capable of running on gasoline or E85. Wagoner bemoaned the lack of effort to introduce more ethanol stations in the US. "Just because automakers create new technologies doesn't mean the infrastructure will be there to support them," he said. "We can't be in the energy provider business."
VeraSun’s CEO Endres’ E&E TV Interview: Ethanol Increasing Feed and Lowering Feed Costs, E&E TV, 4/24/08

Monica Trauzzi: And world leaders seem to be pointing to biofuels as one of the causes for the rising food prices that we're seeing around the world. How do you respond to the global food crisis and the concerns over rising food prices because biofuels are being blamed here?

Don Endres: Well, first, we've, unfortunately, in our world we have had starvation even when we had excess grain and very low prices. So, it's really not an issue of availability. It's the ability for those people to afford food and their country's decision on whether they should allocate their country's resource to feeding their people or building roads and infrastructure and other opportunities. So, that's kind of step number one. Corn ethanol is clearly using some additional grain, but it's very small when you look at it on a worldwide basis. The new demand for corn ethanol from last year is only up 2 percent worldwide. We produce about 30 billion bushels. We're only adding about 600 million bushels of new demand, so it's a very small portion. So, I think people miss the fact that, on a world basis, it's still very small. But I also say that the perspective is that we're grinding the corn and making ethanol. We're actually only using the starch in corn. The rest of the product, the nutritious protein, vitamins, minerals, fat, that we're passing onto the feed grain market, which is where most of corn is sold. So, I think when people, again, understand the facts they'll see that we're only using the starch portion. We're actually increasing feed availability and we're lowering feed costs.

Monica Trauzzi: So, what's to blame then for the high food prices?

Don Endres: Well, there's a number of factors, as you can imagine, that are at play. First, if you look at the index funds, these hedge funds, these speculative funds and you map their open interests compared to corn price you'll see a very strong correlation between the two. So, investor interest is part of what's driving this. Now, the speculative funds typically are there to help allow the market to react early on so that the production changes and clearly that was needed at some point. But it sure looks as though we are getting a production response worldwide and eventually the physical product, the physical market, ultimately will drive pricing and futures will reset. So, we think it's a temporary issue that we're dealing with. The world has had a couple of years of shortages from a wheat perspective and we think that will get worked through. There's also been a mentality to now hoard grain, which is exacerbates the problem short term. Long term, again, we see a number of interesting developments around the world where they're using the new genetics, they're using new farming techniques, new farming practices, and we're going to see production worldwide increase and prices will eventually respond.

Monica Trauzzi: But the price of corn has just about tripled in the last couple of years. It's now over six dollars a bushel. You don't think that that's having more of an impact than you are talking about here on the price of food?

Don Endres: Let me put it in perspective. First of all, food prices are really controlled not by costs, but by substitute products and competition in the marketplace. So, if you take a box of corn flakes, there's only five cents worth of corn in a box of corn flakes. Corn flakes sell for about $3.50 per box. So, you could double or triple it, it really is not a meaningful impact on it. A pound of beef steak has about $0.19 for the corn in it. It sells for about six dollars a pound. Again, even though we want to focus on the cost and what it's moved up, the farm value that's in these products is very small and the market price is really not driven based on cost.

Monica Trauzzi: U.S. farmers are expected to decrease corn plantings this year as compared to last year's corn crop. How is this decrease in corn acreage going to impact your company and the production of ethanol?

Don Endres: Well, first we needed to back down the number of acres versus last year because we have about 1.4 billion of excess bushels, surplus bushels that will be carried over to next year's crop up, so we needed to see that backed down. Interestingly enough, after the report came out soybeans backed down, wheat backed down, and, ultimately, farmers have switched some of those acres back. We think there's another million to 2 million acres that will be switched back to corn and that will provide additional corn and there will be plenty of physical product available.

BIOFUELS NOT AT FAULT IN FOOD CRISIS

April 23, 2008, Omaha, NE—The following is a statement by Toni Nuernberg, executive director of the Ethanol Promotion and Information Council (EPIC):

The United States is the world's largest donor of food aid. Hunger is indeed a world-wide calamity, and it is distressing to think that rising food prices have impacted the budgets of humanitarian organizations around the globe. While Americans are feeling the pinch in the checkout lane, developing nations are seeing years of progress in the battle against poverty and hunger fall by the wayside. This is not an issue to be taken lightly, as evident by the Bush administration's release of an additional $200 million in food aid. Americans have never turned a blind eye to humanitarian crises around the world, whether it involves friend or foe. And we will continue to respond, for the factors behind rising food prices and shortages can never be completely eradicated.

We live in a global economy where an extensive assortment of interrelated factors drives supply and demand and ultimately the price of food. Drought, population growth, growing protein demand in developing countries, war, transportation costs, crop acreage shifts and many other factors affect food prices and supplies. These same issues also contribute to the need for more arable acres. Tropical forests have been cleared for hundreds of years due to population growth in developing countries that need to feed themselves. Despite these well documented factors behind the increase in food prices, it is irresponsible for many in the media to blame the biofuels industry for such a complex issue.

I can unequivocally state that ethanol does not take food from the mouths of starving people. Ethanol production uses field corn -- most of which is fed to livestock with only a small percentage going into cereals and snacks.  In fact, only the starch portion of the corn kernel is used to produce ethanol.

The vitamins, minerals, proteins and fiber are converted to other products including sweeteners, corn oil and high-value livestock feed -- feed which helps livestock producers add to the overall food supply. Grain-based ethanol is fueling research into advancing technologies that will improve production of cellulosic ethanol from feedstocks such as switchgrass, crop waste and other renewable biomass. In the U.S., rising energy costs are directly related to our food bills, as growers fuel tractors and machinery and truckers transport foodstuffs to market. And the impact of fuel prices on food costs underscores the need for energy independence in the United States.  The United States spends roughly one billion dollars a day on imported oil. A fraction of these funds would more than make up for the shortfall in the World Food Program. Ethanol is just one element in our drive to reduce our dependence on fossil fuels.  It should not be a convenient scapegoat for global issues beyond our control.

Letter to the Editor, Free Lance Star: Don't Pin Rising Food Prices on Ethanol, 3/27/2008

OMAHA, Neb.--The recent op-ed in this newspaper addressing the supposed mud-pies being eaten in Haiti as a result of U.S. ethanol production is a ludicrous and irresponsible representation of the issue ["Riots, mud cookies, and greenhouse gases," March 24] . In reality, U.S. corn growers are meeting all diversified needs of their product: food, exports, and energy. In 2007, growers planted over 90 million corn acres. That hardly sounds like a "boondoggle."

The truth is this: Food prices both within the United States and around the world are on the rise. We can look to increased labor, packaging and fuel costs, rising wealth and grain demand in China and India, and drought in Australia as role-players in increased food prices. The impact of ethanol upon food prices is minimal. A study commissioned by the National Association of Corn Growers found that if corn prices are sustained in the $3.50 to $4 per bushel range, prices for cereal and bakery items would cost 1 percent more annually through 2009 than they would have without the corn increase.

The fact is that very little U.S. corn (about 10 percent) is fed directly to people; most of it is fed to animals. About one third of the corn converted to ethanol remains behind as a high-protein animal feed called distillers grains. Moreover, suggesting the ethanol industry is responsible for starvation in the Third World is insulting and patently untrue. The USDA estimates exports of U.S. corn during the current market year at 2.25 billion bushels, 130 million larger than exports during the 2006-07 market year and the largest in 18 years. The expectation of large U.S. corn exports is driven by prospects for tightening world grain supplies and robust world feed grain consumption. The largest increase in sales is to Mexico, one of the very nations that we are supposedly starving to death. It’s remiss not to set the record straight regarding subsidies. Admittedly, federal and state government incentives have provided a tremendous boost in helping grow the ethanol industry, which is not a unique phenomenon. Government has played a role throughout history in the business sector. Government-sponsored research and development benefits consumers in the development of new drugs and medical technology.

The ethanol blender’s credit of $0.51 per gallon cost taxpayers about $3 billion last year, but it reduced crop price supports by about $6 billion and our oil import bill by another $15 billion. This adjustment in corn subsidies has acted as a cost-savings, rather than an additional expenditure by our federal government. The facts here speak for themselves. Ethanol is a homegrown way for the U.S. to reduce its dependence on foreign oil, and create American jobs. The ethanol industry, as with many businesses, is evolving and the focus is on increased efficiency and environmental improvements. Using it as a scapegoat for the world's food supply troubles is simply reckless and erroneous. -- Joanna Schroeder, Director of communications, Ethanol Promotion and Information Council.

April 21, 2008

The Missing Link in the Food vs. Fuel Fight

Where is the world’s impassioned plea to OPEC to lower the price of crude oil -- considering their production costs of $2-3 per barrel and record profits?

Instead, we are hearing an impassioned plea to the United States to return to an era of not  investing into energy security technologies and paying farmers not to produce -- while still being responsible for producing the world’s food, feeding the poor and stuck without an alternative to paying $117 per barrel of oil?

It's hard to believe we have a situation of the biofuels tail wagging the oil consuming dog.  This appears to be a public relations sequel to Wag the Dog movie (no intent other than to compare) where a media spin doctor is working to create a situation that will distract the public from the real issue (oil).  Is life imitating art? Is someone trying to convince the public, using media manipulation techniques, that America is really at war with biofuels – and not their addition to oil? The food fight over the price of food should be about the price of oil. The choice is not food vs. fuel it is fuel vs. food.

Here are a few points of context and comparison.

Total energy for a finished 4-oz serving of mashed potatoes was found to range from a low of about 1950 Btu for fresh to a high of 6950 Btu for frozen, with dehydrated models ranging from 2200 Btu for flaked to 5860 Btu for freeze dried. The broad differences between modes suggest a need for inclusion of energy accounting in decision making for food product development, processing, marketing and preparation. – Journal of Food Processing Engineering

For decades the United States has provided direct payments and food deliveries to lesser developed countries to help feed the poor and disadvantaged.  The federal government, with consumer tax dollars, has also subsidized farmers to keep food cheap, and as a result provide cattle ranchers and chicken producers and the rest of world with cheap feed to lower other food products. The federal government saved $6 billion just last year in farm payments because of ethanol production.  For the first time since electricity was brought to the farm in the 1950s, rural America is experiencing an economic renaissance from new demand for their products driven by the increasing demand for their products, a weak dollar, and many other factors. The sad news is that drought in some regions, stock market speculation, poor feed grain inventory planning in other countries, and problems with actual food staples like rice and wheat are also experiencing problems unrelated to biofuels and driving up the price of food -- beyond normal increases. However, if we don’t find alternatives to oil and increase the competition in the transportation fuel market place – things could get worse.

Why Our Food is So Dependent on Oil by Norman Church

"Concentrate on what cannot lie. The evidence..." -- Gil Grissom

Vast amounts of oil and gas are used as raw materials and energy in the manufacture of fertilizers and pesticides, and as cheap and readily available energy at all stages of food production: from planting, irrigation, feeding and harvesting, through to processing, distribution and packaging. In addition, fossil fuels are essential in the construction and the repair of equipment and infrastructure needed to facilitate this industry, including farm machinery, processing facilities, storage, ships, trucks and roads. The industrial food supply system is one of the biggest consumers of fossil fuels and one of the greatest producers of greenhouse gases.

The modern, commercial agricultural miracle that feeds all of us, and much of the rest of the world, is completely dependent on the flow, processing and distribution of oil, and technology is critical to maintaining that flow.

  • Oil refined for gasoline and diesel is critical to run the tractors, combines and other farm vehicles and equipment that plant, spray the herbicides and pesticides, and harvest/transport food and seed
  • Food processors rely on the just-in-time (gasoline-based) delivery of fresh or refrigerated food
  • Food processors rely on the production and delivery of food additives, including vitamins and minerals, emulsifiers, preservatives, coloring agents, etc. Many are oil-based. Delivery is oil-based
  • Food processors rely on the production and delivery of boxes, metal cans, printed paper labels, plastic trays, cellophane for microwave/convenience foods, glass jars, plastic and metal lids with sealing compounds. Many of these are essentially oil-based
  • Delivery of finished food products to distribution centers in refrigerated trucks. Oil-based, daily, just-in-time shipment of food to grocery stores, restaurants, hospitals, schools, etc., all oil-based; customer drives to grocery store to shop for supplies, often several times a week.
  • Oil is required for a lot more than just food, medicine, and transportation. It is also required for nearly every consumer item, water supply pumping, sewage disposal, garbage disposal, street/park maintenance, hospitals and health systems, police, fire services and national defense (the largest consumer of aviation fuel).

As you can see, the price of life is going up.  Additionally, as you are probably already aware, wars are often fought over strategic and limited resources.

What the United States is Thinking:

For many decades, the U.S. has worked with farmers and the scientific community to increase crop yields, reduce the intensity of pesticide and fertilizer use, improve water productivity and promote conservation tillage that reduces erosion and sequesters carbon. Substantial progress continues in all these areas and was not sufficiently addressed. Last year alone our agencies invested more than $1 billion in research, development and demonstration of next-generation-biofuels production from nonfood feedstocks, which remains the core U.S. strategy.  Our government is committed to advancing technological solutions to promote and increase the use of clean, secure, abundant, affordable and domestic alternative solutions.  — Ed Schafer, U.S. Department of Agriculture Secretary, and Samuel W. Bodman, U.S. Department of Energy Secretary April 21, 2008

What Brazil Is Thinking:

"Don't tell me, for the love of God, that food is expensive because of biodiesel. Food is expensive because the world wasn't prepared to see millions of Chinese, Indians, Africans, Brazilians and Latin Americans eat… We want to discuss this not with passion but rationality and not from the European point of view."  President Luiz Inacio Lula da Silva defended Brazil's production of biofuels rejecting criticism that they are furthering a surge in global food prices and harming the environment.

Lula, a former union leader, rebuffed accusations by Jean Ziegler, U.N. special reporter for the right to food. Ziegler this week called biofuels a "crime against humanity," though he referred mainly to U.S. ethanol derived from corn.  The real crime against humanity is to discredit biofuels a priori and condemn food-starved and energy-starved countries to dependence and insecurity," Lula said at a conference of the United Nation's Food and Agriculture Organization in Brasilia.  Some of Brazil's neighbors, led by oil-rich Venezuela, warned this week that biofuels could increase malnutrition in Latin America.  Lula said he was "shocked" that biofuel critics failed to mention the impact that high oil prices had on food production costs, such fertilizers. "It's always easier to hide economic and political interests behind supposed social and environmental interests," he said.

What Your Accountant is Thinking:

In 1949, the price of corn averaged $1.24 per bushel. On Wednesday [April 21, 2008 as of 9:05 a.m. Eastern Time), corn futures were going for $6.13 per bushel on the commodities market. That's an increase of 394 percent in 59 years.

Now compare that to oil.

In 1949, the price of oil averaged $2.54 per barrel. On Wednesday [April 21, 2008 as of 9:05 a.m. Eastern Time), it was going for $113.70 per barrel. That's an increase of 4,376 percent in the same 59 years.
Petroleum products figure prominently in the price of food -- for agricultural production, packaging and transportation. So, in case anyone doubted it, with food inflation, the price of oil is a big fat elephant in the room. Source: Ethanol Promotion and Information Council

What are you thinking?