Panel: Ethanol drives up food prices

Oct 22, 2010
by DTN

Increased use of cornbased ethanol is driving up the price of food, while the fuel continues to rely heavily on government support, panelists at a global leadership conference said last Tuesday.

The panel discussion, part of a CME Group Inc. conference on global financial leadership in Naples, FL, comes as the debate over food versus fuel returns. The issue had been dormant for much of the past two years, but heated up again in recent weeks as corn prices reached two-year highs.

Corn usage for ethanol in the U.S. and Europe is undoubtedly driving up food prices, which hurt the poorest countries around the world first, said Ian Goldin, a former vice president of the World Bank and current director of Oxford University’s Oxford Martin School.

“We should be clear in our minds that this causes people to die of starvation,” said Goldin, who added ethanol makes little sense from an economic or environmental perspective as well.

The U.S. government last week took what was seen as a small step in favor of the ethanol industry by increasing the amounts that can be blended into gasoline to 15 percent from 10 percent. The increase can only be used in cars built since 2007, although many analysts expect the higher blend will ultimately be approved for older cars as well.

Meanwhile, U.S. legislators are facing a Dec. 31 deadline on another key policy issue—whether to extend a 45-cent-per gallon tax credit for ethanol blenders that expires at the end of the year.

Corn-ethanol production is being driven mainly by government incentives, with its production one of several factors driving food prices higher, said Tim Gallagher, executive vice president of grains and biofuels for Bunge North America, a unit of Bunge Ltd.

Bunge has invested primarily in Brazil’s sugarcane-based ethanol industry rather than U.S. cornbased ethanol.

John Hofmeister, former president of the Shell Oil Company, a unit of Royal Dutch Shell PLC, and founder and chief executive officer for Citizens for Affordable Energy, said using food sources for fuel was “insidious” and part of a larger problem of the U.S. government’s inability to deal with energy policy.

“We are inevitably heading for an energy abyss,” Hofmeister said.

However, he added there are some opportunities to develop biomass as a fuel source, and mentioned algae in particular. Biomass includes other non-food sources, such as corn cobs. — DTN