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Biofuels, Soaring Food Prices and Iowa
When the chairman of the world’s largest food company says that using food crops to make biofuels is “absolute madness,” sensible people should take heed.
Alas, President Obama, along with a Congress that is dominated by Big Ag interests, just doesn’t seem to care that Peter Brabeck, the chairman of the Swiss food giant, Nestle, made that very declaration last month. And that blithe ignorance of the madness of biofuels is resulting in some truly horrifying results. Here are the numbers: This year, the US corn ethanol sector will consume 40 percent of all US corn – that’s about 15 percent of global corn production or 5 percent of all global grain – in order to produce a volume of motor fuel with the energy equivalent of about 0.6 percent of global oil needs.
Congress not only lavishes subsidies on the corn ethanol scam, it has mandated the use of corn ethanol, and provided tariff protections to an industry that is helping push global food prices to all-time highs and shrink grain reserves at the very same time that global grain production is faltering and protests over food prices are commonplace.
The quantity of grain to be consumed this year for US ethanol production – 4.9 billion bushels – boggles the mind. That’s more than twice as much as all the corn produced in Brazil and more than six times as much as is grown in India. Put another way, that’s more corn than the output of the European Union, Mexico, Argentina, and India combined.
Despite these facts, last month, President Obama, in his State of the Union speech, said “we can break our dependence on oil with biofuels.” Meanwhile, the Iowa Caucus, the nation’s first presidential primary is now less than one year away. And Newt Gingrich, the former speaker of the US House, who’s dearly hoping that he can be a viable candidate for the 2012 Republican presidential nomination, was recently in Iowa cravenly wooing the ethanol producers and slamming “big city” critics of the ethanol industry. Alas, there’s little reason to expect much bravery out of Gingrich’s fellow Republicans on Capitol Hill. Speaker of the House John Boehner recently told reporters not to expect cuts to the ethanol subsidies because they are “not in the discretionary spending pot.”
While Obama prevaricates and Congress dithers, ethanol boosters are once again claiming that their sector has negligible effect on grain prices. Instead, they blame surging grain prices on, well, everything but their industry. To be sure, bad weather in Russia and Australia has cut grain harvest in those countries. In addition, rising demand for grain in the developing world is affecting prices.
But the events of the last few weeks — corn futures at near-record highs and social unrest related to food prices – are nearly identical to the mayhem that occurred in 2007 and 2008. Back then, at least 15 studies, including ones by Purdue University, the World Bank and the Congressional Research Service, exposed the link between increasing ethanol production and higher food prices. Soaring food prices led to violent protests in Egypt, Cameroon, Ivory Coast, Haiti, Mauritania, Ethiopia, Madagascar, the Philippines and Indonesia. And worries about adequate food stocks led several countries to ban food exports.
New studies are, once again, finding a direct link between the corn ethanol scam and higher food prices. In December, a study by two US agriculture economists, Thomas Elam and Steve Meyer, found that corn prices are being pushed dramatically higher by demand from the ethanol sector. Elam and Meyer, who have done consulting work for the meat industry, found that without the ethanol mandates, the average price of corn would now be lower by more than $2 per bushel. And they conclude that “biofuels policy has caused significant cost increases for all users of feedgrains.”
There are many unfortunate aspects to America’s corn ethanol insanity. But among the most unfortunate is that US policymakers were warned, and they were warned by the Rand Corporation, one of the most conservative defense-oriented think tanks in America. In May 2008, Rand Corporation issued a report which said that diverting corn to the ethanol sector was not only bad economics, but a security threat: “Using corn for ethanol is economically inefficient and has harmed US national security. Diverting corn from food to ethanol production has pushed up world market prices for grains and other foods, which, in 2008, resulted in riots in a number of developing countries.”
In recent weeks, we’ve seen food-price hikes and protests that are reminiscent of 2008. There have been food riots in Algeria and Mozambique. Last month, some 8,000 Jordanians protested in the streets of Amman and other cities to protest rising food prices. In Egypt, the world’s biggest wheat importer, wheat prices are up by 30 percent over the past 12 months. This week, protesters took to the streets in India to protest surging food costs.
The surging price of wheat is being stoked by rising corn prices, which have doubled over the past six months and are now at about $7 per bushel. “Higher corn prices always means higher wheat prices,” says Bill Lapp, president of Advanced Economic Solutions, an Omaha-based commodity consulting firm.
David Orden, a senior research fellow at the International Food Policy Research Institute in Washington, told me that surging corn prices is “a continuation of what happened in 2008.” The push for biofuels, he said, “has clearly tightened up agricultural commodity markets. That’s good for farmers, but it is not good for poor people around the world.”
Many of those poor live in the US. Some 43.6 million Americans, about 14 percent of the population, are now receiving federal food stamps. Since October 2008, the number of Americans relying on food stamps jumped by 41.5 percent and enrollment in the program has increased for 26 consecutive months. And thanks to the ethanol scam, those many millions are being priced out of the meat aisle. Over the past year, beef prices have risen more than 6 percent and pork prices are up 11 percent. Economists are expecting overall grocery prices in the US to rise by about 5 percent this year.
But the real – and likely more dangerous – food-price increases will happen outside the US. Last year, the OECD projected that global grain prices are likely to be as much as 40 percent higher by 2020, and a London-based non-profit entity, ActionAid, predicted that some 600 million more people could be left hungry by 2020 due to increased production of biofuels.
Brabeck, the chairman of Nestle, the world’s biggest food company, has rightly put the spotlight on the biofuels madness. As the head of a company with $100 billion in annual food-related revenues, Brabeck clearly has a keen understanding of the global food industry. And last month during the World Economic Forum in Davos, he identified the stunningly obvious solution to the ongoing insanity. “No food for fuel,” he said.
“No food for fuel” should be the rallying cry on Capitol Hill and at the United Nations. It should be a required oath for all of the candidates (and Gingrich in particular) who are planning to campaign in Iowa for the 2012 presidential contest. As the biggest ethanol-producing state, Iowa has long had a stranglehold on America’s presidential selection process because it holds the first primary. And because it holds the first primary, the state’s powerful agriculture interests have, for decades, prevented viable candidates from speaking out against the corn ethanol madness.
It’s time – no, it’s long past time — to heed Brabeck’s advice. Stop the madness.
ROBERT BRYCE’s latest book is Power Hungry: The Myths of “Green” Energy and the Real Fuels of the Future.