The Other Factors

As the media pegs corn ethanol as a principal driver of high food prices and escalating world hunger, are more powerful causes being overlooked?
By Tom Bryan | May 09, 2008
Set off by the reproach of central bankers, the scorn of international finance ministers and the anxiety of world leaders, critics of ethanol now hold the renewable fuel partly-to-wholly liable for mounting food prices and world hunger. While prominent columnists like Paul Krugman of The New York Times join in, painting ethanol as the barefaced culprit of food riots and starvation, more serious drivers—skyrocketing oil prices, rising populations, mounting beef consumption—enjoy amnesty in this debate because they are seemingly irrepressible. Ethanol, on the other hand, is a product of choice, its ardent new critics say. It is an expendable alternative that can and should be stopped.

The rising cost of food and its ugliest manifestation, hunger, together represent a grave planetary dilemma. The World Bank estimates that a doubling of food prices over the past three years could potentially push 100 million people in low-income countries deep into poverty. Complex problems can sometimes be solved with simple solutions, and that's precisely what well-intentioned folks seek in calling for an end to ethanol. But are they misguided? Is their rush to blame ethanol for rising food prices and world hunger shortsighted or worse, perilous?

To even begin to answer those questions it is necessary to examine the other, some might say primary, factors driving up food costs and causing food shortages worldwide. While considering these drivers, it's important to question pervasive claims that each, unlike ethanol, can't be stopped, controlled or reduced. Finally, if our planet is truly becoming increasingly food constrained, what role—what piece of the planet's new energy puzzle—should ethanol and other biofuels be consigned to?

Population Growth
Earth's human population is growing. The amount of arable land on the planet is not. That alone is enough to increae the value of crops, land and food.

Speaking at the Biomass '08 Conference & Trade Show in Minneapolis in April, University of Minnesota ecologist David Tilman said the world's population has exceeded 6.3 billion people and is headed toward 9.5 billion by 2050. "We're on a steep population growth curve," he said. "People around the world are consuming more of everything—not just food—and in the next 50 years the population will grow by another 3 billion people."


The World's population is projected to hit 9.5 billion by 2050.
SOURCE: U.S. energy information administration


Population experts like Werner Fornos, head of Global Population Education, a think tank in Washington D.C., say the vast majority of the world's population growth is occurring in parts of the world where people already face social unrest and "brutal poverty." On his Web site, www.globalpopulationeducation.com, Fornos says it took all of recorded history for the earth's population to reach 1 billion people by 1830; it doubled to 2 billion by 1930; 3 billion by 1960; 4 billion by 1975; 5 billion by 1986 and in the past decade hit 6 billion.
Most of the growth, of course, is occurring in developing regions of the world where massive urbanization and a rising middle class mask the extreme poverty and hunger that still remain. Some experts are saying that the world is simply experiencing the early stages of "overshoot"—consumption beyond capacity to sustain it.



At a recent speaking engagement in Witchita, Kan., Fornos called population growth the "real issue facing humanity" and suggested four solutions to curbing it, the Witchita Falls (Texas) Times Record News reported on Earth Day, April 22. Fornos said it is imperative to eradicate female illiteracy; provide employment opportunities for women; reduce infant mortality rates so families in developing nations are not enticed to have more children to make up for those that may die; and establish universal access to the knowledge and means to voluntarily control family size, the Times Record News reported.

If these things occur, Fornos said, he believes the world population could be stabilized at 8 billion people by 2050. Therefore, despite widespread claims that population growth can't be reined in, experts like Fornos say it would be perilous not to try.

Rising Beef Consumption
Tilman, best known in the biofuels industry for his groundbreaking work with mixed-prairie grasses, said that in addition to growing populations in developing parts of the world, rising incomes there are allowing millions of people to transition from subsistence diets of mainly grains to those including beef. This dietary shift is accelerating the demand for grain around the world at a rate that is "much greater than the world's farms can produce," and that is contributing to higher grain, land and food prices, he said.

In 50 years, Tilman said, the typical person living in the world is projected to be 140 percent more wealthy, with constant buying power. But the world doesn't have to wait a half century to witness this phenomenon, says Brian Jennings, executive vice president of the Sioux Falls, S.D.-based American Coalition for Ethanol. China and other rising economic powers are competing with the western world for scarce resources (oil, food, land), driving up the price of almost all commodities. "The growing middle class in China and India are acquiring wealth and they want to upgrade their lifestyle and live like Americans do," Jennings says. "Now, instead of eating rice, vegetables and maybe chicken, they're adding more beef to their diet. They're moving to higher quality and higher cost products. That appetite—that demand—is causing a significant increase [in grain and food prices] globally."

Tilman points out that it takes about 7 pounds of grain to produce 1 pound of beef. In fact, by the time a feedlot steer is slaughtered it has consumed 2,700 pounds of grain yet weighs just over 1,000 pounds. Given these facts, it's not hard to see why more than one-third of the world's grain is now used to feed livestock—and why that amount will inevitably increase unless per capita beef consumption decreases or plateaus.

Reductions are unlikely, though. According to a recent report by the Food and Agriculture Organization of the United Nations, annual per capita meat consumption in developing countries rose from 24 pounds per person to 64 pounds per person during the past four decades. Total meat consumption in the developing world has increased nearly five-fold in the same period, and global meat production overall is expected to double by 2050. This makes livestock the fastest growing sector of global agriculture, the FAO says.

Skyrocketing Oil Costs
Crude oil prices, and subsequently gas and diesel prices, are pushing further into record territory each day. At press time in late April, crude had settled at $117 a barrel after peaking earlier at $119. The U.S. dollar is continuing to fall against the euro. At the pump, the national average price of a gallon of regular unleaded gasoline was more than $3.50 at press time; diesel hit $4.20.

Oil prices have more than doubled since last spring, and they've increased 20 percent since the start of 2008. In fact, that single driver—wildly high oil prices—is arguably the predominant force driving up food prices worldwide, many experts say. "There is no doubt in my mind—and independent studies show this—that energy costs are the primary culprit of high food costs," Jennings says. "There's no single culprit, but the cost of oil is at the top of the list."


Ten years ago, crude oil prices fell to less than $16 per barrel. This year, crude is expected to average $101.
SOURCE: U.S. energy information administration


Jennings explains that the high cost of oil impacts the entire food production, processing and delivery supply chain. "Just think about the fuel needed to grow, harvest, process, package and ship food from the farm to the warehouse to the grocery store," he says. "There's simply no doubt that energy is the main culprit in this."

Indeed, the rising cost of oil might be impacting food costs and food availability in less transparent ways, too. The United States spends roughly $1 billion a day on imported oil. "A fraction of these funds would more than make up for the shortfall in the World Food Program," Toni Nuernberg, executive director of the Ethanol Promotion and Information Council, recently stated in a media release.

Likewise, Securing America's Future Energy, a Washington, D.C.-based nonpartisan organization, released a report in mid-April warning that a confluence of factors including high oil prices, a growing U.S. trade deficit, and a sinking U.S. dollar have created a "self-reinforcing cycle" that is adversely affecting the nation's economy. "The more oil we import, the more dollars we send overseas, increasing our trade deficit and weakening the dollar, which pushes the price of oil up even further," said SAFE President and Chief Executive Officer Robbie Diamond. "That cycle has to be broken."

Contrary to some reports, there's solid evidence that ethanol production has actually helped keep oil and gas prices down. The Wall Street Journal reported in March that a notable Merrill Lynch analyst said world oil prices would be 15 percent higher than they currently are had U.S. and Brazilian ethanol not been serving as a volume extender on the global market. In fact, many experts agree that ethanol represents one of only a handful of practical options the world currently has to immediately decrease its reliance on oil.

Weak Dollar Hedging
While Jennings isn't willing to link corn prices to oil prices, he's certain that high commodity prices—corn, oil, gold, etc.—are linked to the diluted U.S. dollar. "As the financial market finds itself in turmoil and the housing and credit markets are in a place of considerable difficulty, hedge funds, speculators and traders are trying to find a home for their money," he explains. "There's no doubt that commodities have been hot spots for them. I think the current price of corn (trading at $6 a bushel) is artificially high because of this speculation. … How much, I don't know."

In other words, Jennings is saying oil, corn and other commodities are "inflationary hedges"—something traders buy when the dollar is weak. Some experts say this is why a weakening American dollar not only causes higher food prices at home, but indirectly higher food prices abroad, despite increased exports. The thinking goes something like this: A weak U.S. dollar inflates oil prices, which causes higher food prices, which prompt more food shortages (in the world's poorest nations), which equates to a higher probability of people going hungry somewhere on the planet.

Meanwhile, there is also strong evidence that rising grain and food prices are, in part, a result of a marked, overarching uptrend in the value of all global commodities. While not letting biofuels off the hook, the International Monetary Fund recently acknowledged this uptrend. "Higher commodity prices should elicit a supply response with some lag, and almost all developing countries have benefited on net from the increase in global economic activity. So part of what we're observing is perhaps an unavoidable side effect of rising prosperity worldwide," one IMF analyst recently said in a column posted on the organization's Web site. Farmers in poor countries stand to benefit from higher grain prices, too, the analyst added.

Nathanael Greene, senior policy analyst at the Natural Resources Defense Council, agrees with this logic to an extent. Joining a panel discussion at the '08 Biomass Conference & Trade Show that included Tilman and Mascoma Corp. founder Lee Lynd, Greene said commodity prices are being bolstered by all sorts of factors, biofuels included.

"If you step back a little bit, it's easier to see the complexity of this issue. We've got an increasing population, increasing incomes, changing diets, more demand for beef, increased energy demand … and obviously increasing demand for biofuels from food crops," he said. "All of these things are attributed to increased grain prices. Increased grain prices are leading to higher prices for land. We've already seen land prices go up substantially in the United States and that's going to trickle throughout the rest of the world."

Population growth … rising beef consumption … the skyrocketing cost of oil … a weakening U.S. dollar: The list of factors causing high food prices doesn't stop here. There is clear evidence that poor harvests caused by drought and bad weather played a huge role in driving up global food prices in the past 18 months. Ironically, climate change induced by the world's dependence on fossil fuels might be to blame for the increased frequency of extreme weather. In fact, the UN's World Food Programme claims that the single most important factor contributing to food insecurity worldwide is, not biofuels, but drought. Urban and rural sprawl, too, is eating up more and more of the world's arable cropland each year.

It's possible that these and other drivers of high food prices are downplayed by the mainstream media as often as the impact of corn ethanol is overplayed. Ethanol producers say their detractors ignore or trivialize the fact that U.S. corn exports grew last year, that distillers grains is playing a greater role in meeting the world's protein needs, and that the corn ethanol industry won't go on expanding forever.

Forgetting Something?
The United Stated used nearly 20 percent of its corn for ethanol production last year. Of course, the type of corn used to make ethanol, yellow No. 2 field corn, is not directly consumed by humans. "Ethanol production uses field corn—most of which is fed to livestock with only a small percentage going into cereals and snacks," Nuernberg recently stated. "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, which helps livestock producers add to the overall food supply."

In fact, the U.S. Grains Council has reported significant increases in distillers grains exports, which are now being shipped all over the planet. In 2007, the U.S. ethanol industry produced 14.6 million metric tons of distillers grains for the global livestock market.

"Maybe part of the problem is that we, as an industry, have not done an effective enough job explaining to the media that only one-third of the corn kernel is the starch used in the ethanol production process and another one-third of the kernel ends up as very high-quality, high-protein livestock feed," Jennings says, adding that it is even justifiable to assert that had it not been for the ethanol industry increasing the demand for corn, the United States might not have been able to meet the unprecedented new global demand for protein.

"Without ethanol—without distillers grains—how would we be feeding all of these livestock species?" he asks. "We can and should make the case that thanks to ethanol we are able to provide significantly more feed than we otherwise might be. We've got to do a much better job of hammering that point home."

Corn Surplus, Exports Rise
Just how much credit—or blame—should be given to biofuels for driving up global food prices is debatable. The International Food Policy Research Institute in Washington says biofuels production accounts for one-fourth to one-third of the recent increase in global crop prices. Last year, the UN's FAO said biofuels are on track, under current polices, to drive food costs up by 10 percent to 15 percent.

These reports are being questioned by ethanol industry experts who argue that while a record amount of corn went to ethanol production in 2007, the U.S. corn surplus grew to more than 1.4 billion bushels and exports grew by 6 percent. "That's another remarkable point that a lot of people are overlooking," Jennings says. "The National Corn Growers Association expects corn to reach another record this year in light of $5 and $6 corn prices. This idea that we're not exporting corn—that we're not feeding the poor—is totally wrong."

Jennings points out that in April the USDA released its World Agricultural Supply and Demand Estimates report. The report projects that corn use for ethanol production will be down by 100 million bushels this year. "That's not a huge decrease, but the fact that it's a decrease at all is significant," Jennings says. "They're saying corn use will be down because the rate of the ethanol industry expansion is slowing. More importantly, they said corn use for animal feed will be up by 200 million bushels, and corn for exports will be up by 50 million bushels. So the latest, best available data from the USDA says corn for ethanol is on the decline, while corn for exports and feed is on the rise. This is an incredibly important point for us to be making in the midst of all these criticisms."

In addition, the NCGA maintains that trend-line yields for corn are going up significantly. In 2007, U.S. farmers produced more than 13 billion bushels of corn—an all-time record—and the NCGA thinks they can get to 15 billion bushels per year by 2015. American farmers get about 150 bushels per acre today, but seed technology companies like Monsanto think they'll be getting 200 to 300 bushels an acre by 2030.

Finally, while few in the U.S. corn ethanol industry are willing to say corn ethanol production is nearing its limits, there's good reason to believe that it will forever be consigned to a fixed percentage of the U.S. corn crop. In fact, the U.S. corn ethanol industry's rate of growth has slowed dramatically in the past few months as existing plants and plants under construction now bring the industry to within 1.5 billion gallons of its 15-billion gallon pseudo-ceiling prescribed by the new renewable fuels standard.

"I have mixed feels about that," Jennings says. "I would certainly hesitate to send any sort of signal to the public that the end of corn ethanol is near … or that we're reaching a ceiling. On the contrary, I would suggest that with biotechnology, improved hybrids and improved farming technologies, we're going to continue to see yields increase. I think we're going to be able to make more ethanol from corn than most people realize—and we'll do it while keeping corn available for food and feed worldwide."

Tom Bryan is editorial director of Ethanol Producer Magazine. Reach him at tbryan@bbibiofuels.com or (701) 738-4962.