As global food costs rise, are biofuels to blame?

Converting corn and soybeans into fuels is contributing to higher food prices. The dispute is how much.

By Mark Clayton | Staff writer of The Christian Science Monitor

from the January 28, 2008 edition

Page 1 of 2

The biofuels industry plans on producing record amounts of ethanol this year to meet a mandate of the new US energy law – and will need a lot of corn to do it. At the same time, global food prices are at near-peak levels. The question is, how big is the connection between those two developments?

It's a topic getting more scrutiny as the world enters 2008 with the lowest grain stockpiles on record, near-record grain prices, and prospects for even tighter supplies as global demand rises for food and fuel.

Political instability over higher food prices is a key concern. Last year saw tortilla demonstrations in Mexico, pasta protests in Italy, and unrest in Pakistan over bread prices. Soybean prices, meanwhile, prompted demonstrations in front of Indonesia's presidential palace. Food inflation in China is a major problem.

But the connection between the expansion of biofuels and higher global food prices is not clear cut, with the biofuels industry saying its impact is relatively small and biofuel critics saying that ethanol plants are driving up the price of corn and biodiesel producers are taking a bite out of the soybean crop.

"The United States, in a misguided effort to reduce its oil insecurity by converting grain into fuel for cars, is generating global food insecurity on a scale never seen before," says Lester Brown, president of the Earth Policy Institute (EPI), an environmental think tank in Washington. World population growth will require food for an additional 70 million people this year, the EPI said in a report last week.

Driven mostly by population growth, world grain consumption rose an average of 21 million tons per year from 1990 to 2005, the US Department of Agriculture reported this month. Demand for grain to make ethanol soared by 27 million tons last year, USDA reported.

"Putting [corn-ethanol] land back into food use would have a profound effect on the price of corn," says Bruce Babcock, an economist at Iowa State University's Food and Agricultural Policy Research Institute. This year, he estimates, the US will produce about 8 billion gallons of ethanol. To do that, nearly one-fifth of the 80 million acres now devoted to corn will go to make ethanol.

That demand is helping to boost feed prices for cattle, as well as for crops like peas and beans because less land is devoted to growing them, he says.

In a counterpoint study last month by corn growers and the biofuels industry, higher corn prices were found to be only a small element in rising food costs overall – although higher energy costs for fuel to transport crops and grow them were a larger factor.

"This analysis puts to bed the argument that a growing domestic ethanol industry is solely responsible for rising consumer food prices," Bruce Scherr, CEO of Informa Economics, a food and agriculture research and consulting firm based in Memphis, Tenn., said in a statement.

The "farm value" of commodity raw materials used in foods accounts for 19 percent of total US food costs, down from 37 percent in the 1973. Higher costs for labor, packaging, transportation, and energy were a "key driver" behind higher food costs, the report said.

Page 1 | 2 | Next Page