How Biofuels Could Starve the Poor

July 18, 2007

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.

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Repercussions on Raising Prices for Commodities.

January 19, 2007

 

O son of man! If thine eyes be turned towards mercy, forsake the things that profit thee, and cleave unto that which will profit mankind. And if thine eyes be turned towards justice, choose thou for thy neighbor that which thou choosest for thyself.

 

Bahá’u’lláh

We have been learning how the power of the market affects supply and demand. We have also see how Fair Trade may be utilized to raise the price of a commodity, like coffee or chocolate. But what happen when the price of a commodity rises naturally because demand raises? Since the price of oil has been in all times high, the ethanol is now being using as an alternative to produce fuel. Ethanol happens to come from yellow corn, which also may be used for human consumption. The pressure over the demand of ethanol has made the price of corn raise:

Supply and Demand IV

This should be good news. The ecologists should be happy because a renewable, less pollutant material is being used to fuel cars. Fair traders advocates should be happy because corn farmers have now increased their income.

But that is an incomplete point of view from the westerns.

In Mexico, Corn is used to made tortillas. Tortillas are not a simple food sold in fast food restaurants; it’s a basic food and part of that country’s culture. According to the National Institute of Nutrition, 40% of the poorest families get 50% of their calories from tortillas. Tortillas are basically mashed corn, no other ingredient but water is used. Last year, the price of a kilogram of tortillas was 60 cents (USD), then it was raised to 80 cents, but in January the Mexican Government announced that no further subsidies could be given to the tortilla, and the price for a kilogram was set at $1.60. In a country where the minimum wage lays between $6.00 and $8.00 a day this is nothing more that a national tragedy.

Thousands of families are being affected by the raise of the price of corn and tortillas. Then, chickens eat corn, so the price has been raised for eggs and poultry. Now the food in Mexico is more expensive than in last November.

Economic law dictates that the higher price of corn will be an incentive to corn production, but the Mexican capacity of cultivate more corn is limited and close to its edge, so they need to import more corn from the United States, where corn farms are hardly owned by small farmers but huge multinationals using pesticides and genetically modified corn, which is forbidben in Mexico.

Some producers thus have been beneficiated by the high price of corn, but the vast majority of Mexicans now will have to work more to have food in their table.

An unthought consequence of higher prices on commodities!