Biofuels Blame Game

Food vs. fuel misconception keeps raising its ugly head
By Holly Jessen | November 15, 2010
Every time the biofuels industry thinks it has successfully battled back the food vs. fuel argument, it crops up again.

The tired old argument resurfaced after an Oct. 8 USDA report forecast dramatic decreases in world coarse grain supplies, including corn. In the following days corn futures prices shot up to a high of $5.79, prompting some to predict food prices would soar.

The American Meat Institute, for example, quickly predicted that increased corn costs would mean increased prices for beef, pork and poultry and producers would pass on higher feed costs to consumers. AMI and other ethanol critics met with the White House Oct. 21 to oppose the extension of ethanol tax credits. "AMI has had longstanding concerns over the negative impact the rapid expansion of the subsidized corn ethanol industry has had on the meat and poultry sector and American food prices," says AMI President and CEO J. Patrick Boyle.

What groups such as AMI ignore, however, is that one-third of the corn that goes into an ethanol plant comes out as distillers grains. In fact, in 2009, the ethanol industry produced the equivalent amount of distillers grains as was fed to cattle at U.S. feedlots last year, says Bob Dinneen, president and CEO of the Renewable Fuels Association.

Another item that gets filed in the short term memory bank is the World Bank report that came out this summer. Authors John Baffes and Tassos Haniotis conclude that biofuels had a much smaller impact on food prices during the commodity price boom of 2006-'08 than initially reported. It's clear, the report says, that U.S. corn-based ethanol production and, to a lesser extent, EU biodiesel production, affected market balances and land use. Worldwide biofuels only account for about 1.5 percent of the area planted with grain and oilseeds, however. "This raises serious doubts about claims that biofuels account for a big shift in global demand," the report says. It also points out that corn prices didn't change much at all as U.S. ethanol production first started increasing. Notably, prices actually spiked when ethanol use was decreasing in the U.S.

So what did cause the food price spikes? The report says that demand by developing countries probably didn't put upward pressure on the prices of food commodities. It may have, however, put some upward pressure indirectly through energy prices. It also says the investment funds' use of commodities, or the "so-called financialization of commodities," may have been partly responsible for the food price spike in 2007-'08. Oil prices were a big factor, too. "A stronger link between energy and non-energy commodity prices is likely to be the dominant influence on developments in commodity, and especially food, markets," the paper says.

Many in the ethanol industry say they have been vindicated. "This report should finally silence those that have blamed the biofuel producers for food shortages, food price increases and for committing a crime against humanity,'" says Rob Vierhout, secretary general of ePURE, the Producers Union of Renewable Ethanol, formerly eBio. "It is about time these people recognize the facts." Tom Buis, CEO of Growth Energy, says the report would dispel myths and lies of food vs. fuel. "I applaud the World Bank for admitting the error of their ways and setting the record straight."

The question now is when will the food vs. fuel argument actually die?