Corn ethanol is cast as a culprit in rising food prices (again)
A Financial Times report from the Commodity Markets Council annual meeting (this week in Palm Beach) notes that Dodd-Frank financial system reforms top the list of worries for the commodities futures trade association – no surprise – but that the crisis in global food prices is a close second, and that is a surprise from an industry that might expect to profit from higher prices. A prime focus of discontent: the U.S.’s subsidized ethanol industry, which is taking 40% of this year’s corn crop.
U.S. Department of Agriculture Chief Economist Joe Glauber is quoted as describing a “very, very tight situation in corn … Obviously, the main component that’s going on here is ethanol.”
The USDA is set to release fresh 10-year agricultural projections on Monday. Projections from a year ago forecast continued but slower paced expansion of U.S. ethanol, with corn as the industry’s primary feedstock, accounting for 34-35% of crop use … and with corn-based ethanol exceeding 9% of annual gasoline consumption five years out.
In his Washington Post op-ed, Tim Searchinger, a research scholar at Princeton University, says that biofuels have grown from consuming 2% of world grain and virtually 0% of vegetable oil in 2004 to more than 6.5% of grain and 8% of vegetable oil in 2010. As Searchinger notes, U.S. corn ethanol is not the only biofuel causing disequilibrium in the global food market: the EU’s demand for vegetable oil feedstocks and Brazil’s for sugar are driving prices in those commodities; and he suggests that governments worldwide – as well as the U.S. Congress – hold the line on biofuel mandates.
The National Corn Growers Association counters that the “food versus fuel” debate is phony, at least as far as the corn supply is concerned. With average crop yields continuing rise, while ethanol demand nears its sustainable peak, supplies are more than adequate to feed people, livestock and biofuel production. Moreover, with U.S. ethanol production accounting for only 3% of the global grain supply, its impact on global food prices is negligible.
Meanwhile, the UN’s Food and Agriculture Organization (FAO) reports that world food prices hit an historic peak in January.
FAO February 2011 Food Price Index