Food versus Fuel

Australia falsely caught up in the debate while the Americans trade blow for blow

By Ian Thomson

The food v fuel debate – whether we eat it or burn it – has been on the biofuels menu in the United States for the best part of 30 years.

Now it has become a hot topic in Australia, as the media seizes on comments from those who say we must choose between fuelling our cars with ethanol or feeding the masses.

It must be said from the outset that the argument has no place in this country. Ethanol production in Australia now and in the future will be relying on molasses, a sugar refining by-product, and grains such as wheat and sorghum as feedstocks. When grain ethanol is made, only the starch – two-thirds of the grain – is converted to ethanol. The other third is left as a valuable high-protein feed supplement.

There is plenty of molasses and grain to go around for the foreseeable future without ethanol production causing any ripples in the pricing pond. The price of wheat has risen of late, but you can put that down to the worst drought in Australia’s history – not biofuel.

The same goes for sugar cane as a feedstock. Australian sugar producers would love to see the price of their product go up so they can plant more cane. But if the price does jump, it won’t be because we’re feeding the cane into ethanol plants. The plants use the by-product molasses to make ethanol.

Any media drum-beating about Australian food prices going through the roof because of the production of biofuels should fall on deaf ears. It’s a non-event now, and is not likely to be cause for concern in the future.

Cost of petrol is a factor
So then, let’s look at what’s happening in the U.S. where the food v fuel debate continues to rage after three decades. Because American ethanol plants are predominately corn consumers, critics have based their attack on the belief that ethanol is solely to blame for rising food prices.

The reality is that the production of ethanol is just one of many factors driving up food prices. Ironically, the cost of petrol is also a factor because transportation is very much in the mix.

The respected global agriculture and food-industry research firm, Informa Economics, says a study based on 20 years of price data shows that corn prices have minimal impact on the Consumer Price Index for food. Informa’s Chief Executive, Bruce Scherr, told Reuters newsagency that the study debunked the concept that ethanol expansion was the underlying and main significant reason for food price increases.

“We’re not saying that corn prices are cheap, that ethanol hasn’t helped underpin the growth in the corn economy,” he said. “What we are saying is that to blame corn and corn-based ethanol for all of the inflation associated with food and food prices is to grossly under-consider all the other forces at work.”

According to the U.S. Department of Agriculture, for every dollar an American consumer spends on food, only 19 cents goes to a farmer. The balance – 81 cents – goes to labour, fuels, transportation, packaging and other non-farm costs.

The Danish enzyme manufacturing company Novozymes, which runs its Australian operations out of Sydney, buys into the fuel v food debate in an issue of its industry magazine, BioTimes. Novozymes analyst Thomas Odgaard says the issue of food scarcity is a highly complex one.

Enough to feed the world
“Hunger is essentially a matter of income distribution,” he says. “Global food production is more than enough to feed the world population. Most of the world’s 800 million undernourished people live in rural areas, and are dependent on agriculture. The increased demand for agricultural products may allow them to sell their crops at a decent price. “These people have been hurt by decades of declining agricultural prices – a trend which has apparently stopped now.

“The increasing price of food around the world has also been blamed on biofuel. But increased use of biofuels is only part of the explanation. Increased demand for food, especially in India and China, and poor global harvests are other important factors. Further, it is important to remember that the costs of agricultural products only account for a small part of the commercial price of food. A 50 percent increase in agricultural price only results in a five percent increase in the cost of bread.”

The BioTimes magazine article goes on to say that food makes up a declining share of household budgets in Western countries because food is at its historically cheapest level and incomes have increased. Sixty years ago, an average British family spent one third of its income on food. Today, the figure has dropped to one-tenth.

The food v fuel debate has created somewhat of a feeding frenzy in the American media. New York Times reporter Andrew Martin, writing in the San Francisco Chronicle, says: “For years, cheap food and feed were taken for granted in the United States. But now the price of some food is rising sharply, and from the corridors of Washington to the aisles of neighbourhood supermarkets, a blame alert is underway.

Critics not getting much traction
“Among the favourite targets is ethanol, especially for food manufacturers and livestock farmers who seethe at government mandates for ethanol production. The ethanol boom, they contend, is raising corn prices – driving up the cost of producing dairy products and meat, and causing farmers to plant so much corn as to crowd out other crops.”

But ethanol critics don’t appear to be getting much traction with their argument, especially in the halls of power. The U.S. Energy Bill signed into law by President Bush last December ramps up production of ethanol use to 36 billion gallons (142 billion litres) a year by 2022.

The non-profit Ethanol Across America organisation weighed into the debate by saying that after years of cheap corn, American farmers were finally seeing the fruits of their investment in the ethanol industry as corn prices have surged. It asked: “How would you like to work for 25 years and not get a raise? That’s what American corn farmers have experienced until now.”

In an issue brief produced as part of its education campaign, Ethanol Across America says in part that ethanol critics routinely overstate how much corn is actually consumed as human food.

“Less than 12 percent of the nation’s field corn is processed directly into human food products in the United States,” the publication says. “Corn syrup, sweeteners, starches and cereals are examples. Corn demand for the human food market has been flat over recent years. The majority of field corn is fed to livestock, exported or ethanol and its co-products.

Ethanol co-products overlooked
“Despite extensive media coverage about the potential for a significant increase in food prices due to corn demand for ethanol, statistics simply do not support this claim. The Chicago Tribune claimed that using corn for ethanol would raise the price of corn to such an extent that consumer meat prices would rise drastically, adding: ‘the conversion of corn into ethanol would destroy our meat industry.’

“That was in 1995. Ten years later, U.S. consumers continued to enjoy the most affordable and abundant food supply in the world – in spite of a surge in corn demand for ethanol production.”

The Ethanol Across America publication turned the spotlight on ethanol co-products to back up its argument.

“The important role of a co-product of ethanol production is often overlooked by ethanol critics. About one third of each corn kernel is converted to distillers grains – a high-protein feed for livestock. As the production of ethanol increases, so does the supply of this valuable feed source. Livestock nutritionists have documented that, when fed as part of a balanced ration, distillers grains often outperform a corn-dominated diet. Distillers grains have become an important nutritional resource for livestock producers, especially in beef and dairy production.”

John Reifsteck, an American corn and soybean farmer and board member of the Truth About Trade and Technology organisation, says the food v fuel debate is frustrating because it presents a false choice. “We don’t have to pick one or the other,” he says. “We can have both.

New reality is food and fuel
“Almost every day it is possible to read another story blaming ethanol for higher food prices or some other malady. Yes, using corn to make fuel will raise the price of corn. That is exactly why farmers have invested so heavily in ethanol production. Higher corn prices can raise the price of food, but consider there’s less than a dime’s worth of corn in a box of cereal or six-pack of cola. Affordable food is always a concern for the world’s poor, but political and social issues are a far greater problem than price.

“Cheap grain is not a solution to world hunger – even U.S. aid programs that give away food are routinely criticised for their effect on local agricultural production and economies.

The economic future of the United States relies on a dependable supply of energy. We can try to influence sovereign nations to continue to ship us petroleum, and hope the tankers can navigate our ports. That must be part of our national energy policy. But we can’t ignore the talented people who have made American agriculture so incredibly productive. They are one of our country’s greatest resources.

“They make it possible to sidestep the false choice of food or fuel and embrace the new reality of food and fuel.”
The last word comes from Bob Dinneen of the American Renewable Fuels Association. He told the Wall Street Journal in an interview: “The biofuels industry has been made a scapegoat for food price increases that are due to many factors, including higher oil prices and a growing overseas demand for grain.”

Ian Thomson can be reached at [phone]; 0409-827-387 or by email [e-mail]