As pork prices soar, Chinese put brakes on corn for ethanol

Ethanol production has put the Chinese government in an unpleasant bind, as fears rise that the environmentally friendly gasoline additive is also fueling politically dangerous increases in the price of food – particularly pork, a key staple.

With the ethanol industry gobbling up a growing share of China's corn harvest, authorities have stomped on the brakes to slow what one official report calls "blind" investment in distilleries.

"China cannot sacrifice food security for energy: that seems to be the majority view in the government now," says Zhang Zhongjun, deputy head of the Beijing bureau of the United Nations' Food and Agriculture Organization (FAO).

Prime Minister Wen Jiabao offered the latest sign of government concern when he made a highly publicized visit last weekend to a piggery and a meat market in Xi'an, about 750 miles southwest of Beijing. The price of pork has gone up by 29 percent over the past year and the price of live pigs by 71 percent, according to the Agriculture Ministry.

In a country where people eat more pork than anywhere else in the world except Germany, that jump in the price of a staple has dominated recent headlines and sparked grumbling.

"The government is going all out to ensure the supply of pork and keep it affordable," Mr. Wen reassured a supermarket crowd, according to the Xinhua state news agency.

"The Chinese government is very sensitive to this," says Hu Xingdou, a political analyst at the Beijing Institute of Technology. "They are afraid that rising prices will affect social stability. They have not forgotten that inflation was an important reason for people to get involved in the events of 1989," when students led massive protests in Tiananmen Square.

Industry analysts blame the price rises partly on a shortage of pigs in the wake of outbreaks of "blue-ear disease" around China.

Though the authorities have publicly admitted to only 300 deaths, they have privately reported 100,000 mortalities to international agencies, and even that figure is not credible, say experts.

"Several million pigs may have died, we just don't know," says one international expert familiar with the situation. Chinese farmers raised 465 million pigs last year.

At the root of the problem, though, say agriculture analysts, is the rising cost of pig feed, which is comprised mostly of corn. Despite a bumper crop last year, corn prices have risen by nearly 30 percent over the past nine months on the Dalian Commodities Exchange.

That, says Luo Yunbo, head of the food-science department at China Agriculture University, is because "corn is being sought for industrial purposes, such as ethanol, not just agricultural use."

Pushback on ethanol

Ethanol has been trumpeted as the alternative fuel of the future, offering cleaner energy and new opportunities for farmers in developing countries.

China's current Five Year Plan sets the goal of using biofuels for 15 per-cent of the country's transport needs by 2020; already gas stations in a number of provinces mix 10 percent ethanol into the gasoline they sell.

But critics around the world have recently begun to question the unconsidered effects of large-scale ethanol production, such as increasing competition for human or animal food supplies. And in China, where an estimated 30 million people died in a famine less than 50 years ago, many have reservations about using food for fuel.

As ethanol factories large and small have sprung up in China's corn producing regions in recent years, they have begun to compete with animal-feed manufacturers for raw materials.

The industrial use of corn nearly doubled between 2001 and 2005, to 23 million tons, according to a study released last December by the National Development and Reform Committee, China's chief economic planning agency. That represented 16.5 percent of the corn harvest in 2005.

The result, said the report, is a shortage of corn. "Corn supplies to the processing industry compete with supply for [animal] feed, which impacts the development of stock-breeding."

The proportion of China's corn crop used for nonfood purposes is dwarfed by the 30 percent of American corn that goes into ethanol, and Chinese ethanol production – estimated at 3.7 million tons by the Louisiana State University Agriculture Center in 2005 – was a quarter of US levels.

But "China is different," argues the FAO's Mr. Zhang. "America and Brazil have huge land areas and plenty of water," he points out. "China has shortages of water and arable land, and it is a deficit country," importing more grain than it exports.

Debate in China picking up speed

In the ongoing debate among Chinese leaders and scholars about the value of ethanol and biofuels, "more and more people think that China's potential is not so big, that China cannot use food for fuel because food security is more important than energy and because food is politically very important," Zhang says.

Such arguments convinced the government to slap new controls on the corn-processing industry late last December, suspending all investment projects still in the pipeline and insisting that all future ethanol projects should apply for approval from state planning agencies.

The continuing rise in corn prices since the beginning of this year suggests that the central government is having its usual difficulty in controlling developments in China's provinces. But the crisis has not deterred the authorities from pursuing other ethanol distilling projects and biofuel experiments.

A state-owned grain and oils conglomerate will launch a pilot project later this year to process cassava – a starchy tuber that is not considered a food in China – into ethanol. Plans are also under way to plant tens of thousands of acres of jatropha – also inedible and grown in wastelands – by the end of the decade.

One principle must rule the development of China's alternative fuel industry, the National Development and Reform Committee insists: "a guarantee that foodgrains are not the main source" of its raw materials.