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The Drought and the Biofuels Disaster

Never mind the drought, shrinking corn crops, rising food prices, or the possibility of global grain shortages, let’s talk about the evils of foreign oil.

That was the message put out last week by the ethanol lobbyists just a day or so before Jose Graziano da Silva the director of the United Nations Food and Agriculture Organization called for “an immediate, temporary suspension” of America’s corn-ethanol mandates to “give some respite to the market and allow more of the crop to be channelled towards food and feed uses.”

Da Silva was responding to soaring corn prices, which are up by more than 60 percent over the past two months. They recently hit $8.49 per bushel, an all-time high. And if drought conditions in the United States and Europe continue, prices will continue climbing.

Da Silva is not alone in his concern about grain prices. On Tuesday, Shenggen Fan, the director of the International Food Policy Research Institute, told Bloomberg that a global food crisis may “hit us very soon” due to the drought. Fan continued saying “Biofuel production has to be stopped. That actually pushed global food prices higher and many poor people, particularly women and children, have suffered.”

But never mind the women and children, says Brooke Coleman, the executive director of the Advanced Ethanol Council, one of a myriad of biofuel lobby groups. On August 8, Coleman defended the corn-ethanol mandates saying that “the problem is our dependence on foreign oil, which in turn costs consumers billions of dollars and comes at great cost to the economy and the environment. The Renewable Fuel Standard, which drives American-made fuel into the marketplace, is part of the solution.”

Growth Energy, yet another ethanol lobby group, had a nearly identical message. On August 8, the group’s CEO, Tom Buis, issued a statement defending domestic corn ethanol production, and dismissed criticisms that “tie biofuel production to alleged increased food prices.” He went on, saying that efforts to curtail the corn ethanol mandates will only continue “to keep our nation addicted to foreign oil. Ethanol reduces our dependence on foreign oil, creates jobs right here in America, improves our environment, revitalizes rural communities and saves consumers at the pump.”

For the ethanol lobby, the bogeyman of foreign oil trumps everything, including common sense. But you don’t have to be an economist to understand why the ethanol sector is driving food prices higher.

This year, about 4.3 billion bushels of corn will be converted into motor fuel, according to Bill Lapp, president of Advanced Economic Solutions, an Omaha-based commodity consulting firm. That means that nearly 37 percent of this year’s corn crop, which Lapp estimates to amount to about 11.6 billion bushels, will be diverted into ethanol production.

Compare those numbers to those of 2005, when corn was selling for just $2 per bushel. That year, 1.6 billion bushels of corn —or about 13 percent of domestic corn production—was distilled into ethanol.

By dramatically increasing the volume of ethanol that must be blended into our gasoline supplies, Congress has, in just seven years, nearly tripled the amount of corn being diverted from food production to fuel production. And with the worst drought in recent memory desiccating corn fields, those mandates are hurting consumers who are already being pummeled by stubbornly high unemployment and a weak economy.

A recent study published by a coalition of food producers, including the National Turkey Federation, National Pork Producers Council, and the National Cattlemen’s Beef Association, found that since 2007, when the ethanol mandates took effect, prices for grain-intensive foods like cereals, bakery products, meats, poultry, eggs, fats, and oils, have increased at almost twice the rate of overall inflation. That study is one of at least 16 reports—published by entities ranging from Purdue University to the World Bank—which have linked the ethanol mandates to higher food costs.

Last month, Ken Powell, the CEO of General Mills, the world’s sixth-largest food producer, said that the corn ethanol mandates were leading to higher food prices because corn and wheat prices are “all linked.”

To understand why the corn ethanol scam is affecting grain prices, consider this: America ’s corn ethanol sector now consumes about as much grain as all of this country’s livestock. About 4.6 billion bushels of corn will be used for livestock feed this year. Thus, American motorists are now burning about as much corn in their cars as is fed to all of the country’s chickens, turkeys, cattle, pigs, and fish combined.

Need another comparison? This year, the American automobile fleet will consume about twice as much corn as is grown in the entire European Union. Put another way, the U.S. ethanol sector will burn almost as much corn as is produced by Brazil, Mexico, Argentina, and India combined.

Need another comparison? This year, the U.S. is now using about 13 percent of global corn production—that’s about 4.6 percent of all global grain production—so that it can produce a quantity of ethanol that contains the energy equivalent of about seven-tenths of one percent of global oil needs.

Despite these facts, the Obama administration has become a willing accomplice to the corn ethanol industry. Agriculture Secretary Tom Vilsack (the former governor of Iowa) routinely praises the corn ethanol sector. In February, during a speech at the 2012 National Ethanol Conference, he said that “we owe ethanol producers in this country a debt of gratitude.” Meanwhile, the EPA is doing all it can to force more ethanol into the gasoline supply despite objections from a broad coalition of groups ranging from grocery makers to the oil industry.

Gasoline containing ten percent ethanol, or E10, has been sold for many years. But with too much ethanol on its hands, the ethanol industry launched an intensive lobby campaign at the EPA to convince the agency to increase the permissible blend to 15 percent, or E15. And a few weeks ago, the agency gave final approval to the move to E15 even though only about four percent of all the motor vehicles in the U.S. are designed to burn fuel containing that much ethanol.

The EPA approved the move to E15 despite strident objections from groups like the Outdoor Power Equipment Institute, which says the higher-ethanol blend fuel is “dangerous” and could damage or ruin motors used in generators, lawn mowers, and other devices. Numerous other trade groups, including the Alliance of Automobile Manufacturers and American Petroleum Institute, have also been fighting the move to E15. Toyota Motor Corporation has taken the unusual step of adding a label to the fuel caps on the new cars it sells in America. The label warns “Up to E10 gasoline only.”

Last year, Peter Brabeck-Letmathe, the chairman of the Swiss food giant Nestle declared that using food crops to make biofuels was “absolute madness.”

He’s right, of course. But what is so maddening about the madness is that all of this was so easily predictable. The leaders in Congress who foisted the ethanol scam on the American people should have known that droughts happen, that corn crops cannot, will not, grow to infinity.

David Swenson, an associate scientist in the economics department at Iowa State University told me recently that Iowa hasn’t had a hard drought since 1988 and the current drought is “now rivaling that. We forget about childbirth, and pain, and lessons learned.” Over the last two decades, says Swenson, the U.S. has had good corn crops, and “That luck enabled the renewable fuel policies to slide through and not be addressed seriously. Everyone forgot about Mother Nature.”

Today, Mother Nature is taking her revenge. And consumers here in the U.S. and abroad are paying the price. The only question is whether the feckless bureaucrats in the Obama administration and their willing enablers in Congress will finally put an end to the ethanol madness.

Robert Bryce is the author of Power Hungry: The Myths of “Green” Energy and the Real Fuels of the Future.

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