How Biofuels Could Starve the Poor

The world’s poorest people already spend 50 to 80 percent of their total household income on food
~C. Ford Runge and Benjamin Senauer

I wrote some time ago about how the increasing use of ethanol was damaging the economy of the poor in Latin America, with little benefit for the environment. The rise of corn prices, driven by the excessive demand, increased the price of corn and other staple foods, and make them harder to afford for the more vulnerable citizens. C. Ford Runge and Benjamin Senauer just published an article in the May/June issue of foreign affairs that expand on this problem.

There were 110 ethanol refineries in operation in the United States at the end of 2006. Many were being expanded, and another 73 were under construction. When these projects are completed, by the end of 2008, the United States’ ethanol production capacity will reach an estimated 11.4 billion gallons per year. President George W. Bush called on the country to produce 35 billion gallons of renewable fuel a year by 2017, nearly five times the level currently mandated.

The push for ethanol and other biofuels has spawned an industry that depends on billions of dollars of taxpayer subsidies, and not only in the United States. In 2005, global ethanol production was 9.66 billion gallons, of which Brazil produced 45.2 percent (from sugar cane) and the United States 44.5 percent (from corn). Global production of biodiesel (most of it in Europe), made from oilseeds, was almost one billion gallons.

Of course this growth in the demand means that more and more of the corn production is used to produce ethanol, and this is affecting the food system. It is binding the prices of a staple food with oil, third world countries are double whammed with oil and food prices going up:

Filling the 25-gallon tank of an SUV with pure ethanol requires over 450 pounds of corn -which contains enough calories to feed one person for a year. By putting pressure on global supplies of edible crops, the surge in ethanol production will translate into higher prices for both processed and staple foods around the world. Biofuels have tied oil and food prices together in ways that could profoundly upset the relationships between food producers, consumers, and nations in the years ahead, with potentially devastating implications for both global poverty and food security.

Worse, this is not an economically driven phenomena, but a political one:

In the United States and other large economies, the ethanol industry is artificially buoyed by government subsidies, minimum production levels, and tax credits. High oil prices over the past few years have made ethanol naturally competitive, but the U.S. government continues to heavily subsidize corn farmers and ethanol producers. Direct corn subsidies equaled $8.9 billion in 2005.

Two additional effects are: the high price of yellow corn, the current source of ethanol and used to feed cows, will drive white corn -used for human consumption- and other staples foods’ prices higher, and more surface will be deforested to harvest corn:

With the price of raw materials at such highs, the biofuel craze would place significant stress on other parts of the agricultural sector. In fact, it already does. In the United States, the growth of the biofuel industry has triggered increases not only in the prices of corn, oilseeds, and other grains but also in the prices of seemingly unrelated crops and products. The use of land to grow corn to feed the ethanol maw is reducing the acreage devoted to other crops. Food processors who use crops such as peas and sweet corn have been forced to pay higher prices to keep their supplies secure — costs that will eventually be passed on to consumers. Rising feed prices are also hitting the livestock and poultry industries. According to Vernon Eidman, a professor emeritus of agribusiness management at the University of Minnesota, higher feed costs have caused returns to fall sharply, especially in the poultry and swine sectors. If returns continue to drop, production will decline, and the prices for chicken, turkey, pork, milk, and eggs will rise. A number of Iowa’s pork producers could go out of business in the next few years as they are forced to compete with ethanol plants for corn supplies.

And for what? Are we really helping the environment with corn based ethanol? Ford and Senauer do not agree:

Ethanol and biodiesel are often viewed as environmentally friendly because they are plant-based rather than petroleum-based. In fact, even if the entire corn crop in the United States were used to make ethanol, that fuel would replace only 12 percent of current U.S. gasoline use. Soybeans and especially corn are row crops that contribute to soil erosion and water pollution and require large amounts of fertilizer, pesticides, and fuel to grow, harvest, and dry. They are the major cause of nitrogen runoff. Nor is corn-based ethanol very fuel efficient. Debates over the “net energy balance” of biofuels and gasoline have raged for decades. Corn-based ethanol appears to be favored over gasoline, and biodiesel over petroleum diesel — but not by much. Scientists at the Argonne National Laboratory and the National Renewable Energy Laboratory have calculated that the net energy ratio of gasoline is 0.81, a result that implies an input larger than the output. Corn-based ethanol has a ratio that ranges between 1.25 and 1.35, which is better than breaking even. Petroleum diesel has an energy ratio of 0.83, compared with that of biodiesel made from soybean oil, which ranges from 1.93 to 3.21. (Biodiesel produced from other fats and oils, such as restaurant grease, may be more energy efficient.) Similar results emerge when biofuels are compared with gasoline using other indices of environmental impact, such as greenhouse gas emissions. The full cycle of the production and use of corn-based ethanol releases less greenhouse gases than does that of gasoline, but only by 12 to 26 percent. The production and use of biodiesel emits 41 to 78 percent less such gases than do the production and use of petroleum-based diesel fuels.

Using gasoline blends with 10 percent corn-based ethanol instead of pure gasoline lowers emissions by 2 percent. Likewise, diesel containing 2 percent biodiesel emits 1.6 percent less greenhouse gases than does petroleum diesel. On the other hand, biodiesel can increase emissions of nitrogen oxide, which contributes to air pollution. In short, the “green” virtues of ethanol and biodiesel are modest when these fuels are made from corn and soybeans, which are energy-intensive, highly polluting row crops.

One root of the problem is that the biofuel industry has long been dominated not by market forces but by politics and the interests of a few large companies. Corn has become the prime raw material even though biofuels could be made efficiently from a variety of other sources, such as grasses and wood chips.

The World Bank suggests that caloric consumption among the poor declines by about half of one percent whenever the average prices of all major food staples increase by one percent. When one staple becomes more expensive, people try to replace it with a cheaper one, but if the prices of nearly all staples go up, they are left with no alternative.

If the prices of staple foods increased because of demand for biofuels, the number of hungry people in the world would rise by over 16 million for every percentage increase in the real prices of staple foods. That means that 1.2 billion people could be chronically hungry by 2025. The world’s poorest people already spend 50 to 80 percent of their total household income on food.


3 Responses to How Biofuels Could Starve the Poor

  1. Sundog says:

    This food vs fuel thing is just goofy… how many bushels of corn went into coke, pepsi, mtn dew, twinkies, and all manner of useless food items versus biofuels? Why aren’t we arguing food vs. really bad food?

    It comes down to this for me — no matter what crisis moves you, whether that be climate change, peak oil production, instability in oil producing countries — we need to break the strangle hold that petroleum has at the retail pump. If it takes Big Agriculture to beat back Big Oil to break that stranglehold, I’m on board.

  2. Manuel says:

    Sundog, thanks for your comment. The junk food grown at a natural pace with the food demand, and since the mark-up of a bag of chips is about 400%, the demand of corn for junk food does not have an important impact in the price of corn. Besides, junk food follows supply and demand laws. Biofuel does increase -severely- the price of corn for two reasons: Biofuel is highly subsidized in USA and Brazil, so the economic law does not apply here because the demand is artificially pumped. Second, biofuel will bind the prices of oil to the prices of food, something that will severely damage third countries economies.
    Ethanol is a feel-good solution that is easy to implement for the user because requires no effort from his part. You can still have you Hummer and drive to the corner store any time. The real solutions require real change of behavior, THEN the stranglehold you mention would be broke.

  3. […] it’s not like this was foreseeable or anything. This entry was posted in In the News, Politics by Sailorcurt. Bookmark the […]

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