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on June 23, 2009

Diversion of corn to ethanol: The reality emerges

Diversion of corn to ethanol in the U.S.A. has increased prices of commodities and food in the domestic market but has indirectly reduced availability of grains which are food staples in Third World nations.

Concurrent feature articles on world hunger in the Economist, National Geographic, Time, and The New York Times coupled with comments by the Chairman of the Federal Reserve Bank, the Director General of the UNO Food and Agriculture Organization and the Secretary of Energy all attest to the hardship created by attempts of the present Administration and Congress to establish energy independence.  Over the short term, diversion of corn to ethanol in the U.S.A. has increased prices of commodities and food in the domestic market but has indirectly exacerbated the reduced availability of grains which are food staples in Third World nations. Food riots have occurred in Haiti and in sub-Saharan Africa. Robert Zoellick, President of the World Bank estimates that 30 countries face unrest as a result of food shortages. Governments have imposed bans on export of rice, wheat and other cereals to neighboring countries and in some cases have rescinded import tariffs or introduced subsidies to prevent unrest. Jeffery Sachs, advisor to the UN Director General as quoted in the New York Times maintains that “we are experiencing the worst food crisis in 30 years”. Admittedly overpopulation, political instability, corruption, drought related crop failures in Asia and Africa together with mismanagement and deficient planning are responsible for much of the misery but the U.S.A. and Canada have low carry-over stocks of wheat and corn which could compensate for non-recurring and seasonal deficiencies in supply.

The U.S. Bureau of Labor Statistics confirmed a 5.1 percent rise in the Food and Beverage component of the Consumer Price Index for March 2008. This prompted Scott Faber, VP for Federal Affairs of the Grocery Manufacturers Association to blame rising prices on the diversion of 25 percent of the corn crop into ethanol. He called for Congress to “re-examine food-to fuel mandates-- which are great news for corn farmers but terrible news for consumers”. This position is supported by research conducted by Iowa State University which predicted a 13.5 percent increase in the price of eggs in 2008 at a corn price of $4.50/bushel—far under the current $6.00/bushel. In contrast the Renewable Fuels Association rejects any link between corn price and the cost of food. This contention is soundly demolished by studies conducted by analysts at think tanks including the Heritage Foundation. Michael Walden, an economist at North Carolina State University, questions the wisdom of the current ethanol policy since “food and fuel prices have both surged”.

The second critical issue relating bio-fuels is the relatively low gain in energy by converting corn to ethanol. For every unit of input of fossil fuel, corn ethanol yields 1.3 units of energy. In contrast there is an eight-fold return from sugarcane ethanol. Cellulosic ethanol offers twenty times the return with a marked reduction in greenhouse gas emissions. Corn ethanol actually contributes to global warming and production requires prodigious quantities of water.

Cellulosic ethanol offers benefits in terms of non-competition with the needs of the human population and livestock industries but development will require intensive development and investment. The U.S Department of Energy announced three grants totaling $86 million on April 18th to erect three pilot-scale biorefineries in addition to projects approved in 2007 and four units during the first quarter of 2008. One of the three new units will be established near Nicholasville, KY by Ecofin LLC, a subsidiary of Alltech Inc. which applies fermentation technology to produce non-antibiotic additives for the poultry, swine, aquaculture and dairy industries.

It will require considerable pressure on Congress to reverse the destructive program of subsidized diversion of corn to ethanol. Hopefully the electorate, policy makers and independent legislators will realize that the present poorly conceived biofuels program will damage the environment and inflate both food cost and availability and is unworthy of long-term support .

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