Debunking the Myths of the Food-vs.-Fuel Debate

By Kenneth C. Reed | June 02, 2008
Ethanol is currently on trial, charged with causing world hunger and civil unrest. It is alleged that the corn and other grains used to produce biofuels has led to severe food shortage and disrupted food security around the world. Alternative fuel production has been blamed for high food prices at the grocery store and causing a "silent famine" among the world's poor. Some have gone as far as to claim that production of ethanol and biodiesel from grain is a "crime against humanity." To the charges, ethanol pleads "not guilty."

The purpose of this article is to set forth the truth and debunk the myths about ethanol and biodiesel. The public deserves to know the truth so that they can discern fact from fiction and propaganda. Armed with truth, consumers will be less inclined to succumb to biased media hype, special interest group propaganda and knee-jerk decision making by political leaders. The truth will expose the real culprits behind high food prices and the hunger crisis.

The real perpetrators of the current world food crisis are fear, greed, rising demand, dwindling supply, prolonged drought in Argentina, heavy rains and flooding in the Midwest United States and other parts of the world, and foreign government decisions to reduce grain exports in an effort to drive down domestic prices. These factors all play a pivotal role in the price and availability of food. In 2008, the U.S. ethanol industry is expected to consume approximately one-third of the nation's projected corn output. However, field corn used for ethanol production is not used for human consumption. The actual net impact of ethanol production on food prices in the grocery store amounts to a few pennies.

Compare this to the following facts.

Truth No. 1: A barrel of crude oil sold on the New York Stock Exchange for $75 in July 2007. On May 7, 2008, this global commodity sold for $122 per barrel. By May 9, the price hit $126 per barrel. It takes approximately six weeks for a barrel of oil to make its way from the refinery to consumers' gas tanks. In addition, oil companies switch from winter gas to summer blends, a process that results in an upward spike in gas prices.

Truth No. 2: Consumers paid approximately $2.78 per gallon for gas in April 2007. On May 7, 2008, the nationwide average cost of gas was $3.61 per gallon. The American public will soon feel the effects of $126 per barrel oil and the summer change-over as the cost of a gallon of fuel will likely exceed $4 and move toward $4.50 by the time this issue of EPM is printed.

Truth No. 3: Rice is the No. 1 food staple for nearly one-half of the world's population. The record price of $894 per ton was set on May 6, 2008. The previous record was set in May 2007 when the price was $327.25 per ton. Much of the world's population that relies on rice as its primary dietary supplement is poor and has been the hardest hit by this sharp increase.

Truth No. 4: Thailand, the world's largest rice exporter, ships one-third of all rice exports. The world is gripped by the fear that Thailand will soon restrict rice shipments, thereby furthering the global food crisis. The Thai government has said it will not impose such restrictions. Nevertheless, worry has caused consumers to hoard rice which has lead to a $2 to $3 increase in price in the grocery store. Sam's Club and Costco have placed limits on bulk rice purchases claiming their decision is based on recent supply-and-demand trends.

Truth No. 5: Fear concerning Thailand's potential to restrict rice exports is fueled by the fact that other major world exporters (India and Vietnam) indicated that they will reduce rice exports in an effort to drive down domestic prices. China, Egypt and Cambodia have imposed such restrictions.

Truth No. 6: In December 2007, the price of wheat topped $10 per bushel. This was after experts had predicted that wheat would sell for $3.80 per bushel by June 2007. At press time, May 2008 wheat was selling for $12.92 per bushel, having fallen from $19.80 per bushel in February 2008. This price volatility is coupled with the fact that the world's wheat supply has diminished to its lowest level in 60 years.

Truth No. 7: A bushel of corn sold for an average price of $3.40 in June 2007. By May 5, 2008, a bushel of corn sold for $6.02. Soybeans sold for an average of $6.35 per bushel in 2007 and reached $13.32 per bushel by May 2008. Corn and soybeans are the primary feedstock for producing ethanol and biodiesel fuels.


Prices received for U.S. corn
SOURCE: USDA NATIONAL AGRICULTURE STATISTICS SERVICE


Truth No. 8: Developing nations such as China and India have become more affluent, resulting in increased food consumption, particularly meats, poultry and vegetable oils. People who once ate approximately 97 pounds of meat per year are now eating 242 pounds of meat per year. Increased meat consumption requires increased livestock which requires a significant increase in feed grain. This increase in demand for grain has been a trend for the past five years, significantly impacting worldwide supply and a cause of surplus levels dwindling to their lowest point in 60 years.

Truth No. 9: At press time, prolonged drought in Argentina, floods in the Midwest United States and heavy rains in other areas of the world have slowed the planting season for farmers. Unless the weather changes soon, crop yields will be significantly less in 2008. Lower supply, worldwide population growth and increased demand results in higher prices.

Add to these factors the decline in the value of the U.S. dollar and the shift of investment dollars into global commodities and the ingredients exist for higher food prices in the grocery stores. At the same time everything is rising in price, household incomes have remained flat or declined. Unfortunately, the poor of the world suffer the most. Civil unrest in areas of the predominantly poor have nothing to do with production of ethanol but everything to do with the widening gap between the "haves" and the "have-nots."

Truth No. 10: This time, ethanol and biodiesel are here to stay. In prior generations, major oil companies and special interest groups have been able to block the penetration of biofuels into the market. With rising energy costs, increased concern for global warming and greater emphasis on reducing America's dependence on foreign oil, the time is right for the United States to invest in alternative fuels. The renewable fuels industry achieved $25.4 billion in revenues in 2007 from sales of 15 billion gallons of fuel. The market is projected to grow to $81.1 billion per year by 2017.

Major oil companies raked in $123 billion in profits this past year while the price at the gas pump reached levels which might force people to choose between driving and eating. Some American truckers are unable to afford to fuel the trucks that deliver most of this country's food to the stores. Truckers have paid in excess of $22 billion more for fuel in 2008 than they did in 2007. Higher prices are passed from the truckers to the stores and from the stores to the consumers.

The sad truth is that there is no food shortage. Food is in the store and rotting on the floors of the warehouses, but the people of the world are increasingly unable to afford to purchase it due to severe price increases fueled by ungodly price increases for oil. If it had not been for the availability of ethanol and biodiesel as a competitive alternative to petroleum-based fuels, the price of gas would be even higher than it is now.

In conclusion, the charges against ethanol and biofuels are wrong. At best, those who promote these charges are misinformed. At worst, these people and groups are part of an effort to reverse U.S. government policies that promote alternative fuel development.

Kenneth C. Reed is chairman and CEO of Natural Alternative Fuels Inc. Reach him at kcreed@naturalalternativefuels.com or (248) 460-3233.