Side effects of ethanol dependency – Update

December 4, 2007
Riots and hunger feared as demand for grain sends food costs soaring
Expert to warn industry of threats to world supply
Biofuels and Chinese boom put pressure on harvests

Jonathan Watts in Beijing Guardian
The risks of food riots and malnutrition will surge in the next two years as the global supply of grain comes under more pressure than at any time in 50 years, according to one of the world’s leading agricultural researchers.
Recent pasta protests in Italy, tortilla rallies in Mexico and onion demonstrations in India are just the start of the social instability to come unless there is a fundamental shift to boost production of staple foods, Joachim von Braun, the head of the International Food Policy Research Institute, warned in an interview with the Guardian.
The growing appetite of China and other fast-developing nations has combined with the expansion of biofuel programmes in the United States and Europe to transform the global food situation.
After decades of expanding crop yields and falling food prices, the past year has seen a sharp rise in the cost of wheat, rice, corn, soya and dairy products.
“Demand is running away. The world has been consuming more than it produces for five years now. Stocks of grain – of rice, wheat and maize – are down at levels not seen since the early 80s,” said von Braun, whose organisation is the world’s largest alliance of agricultural researchers, economists, and policy experts.
So far, crises have been averted because states have eaten into national stocks, but this could be set to change because China, in particular, has run down its supplies.
“Over the next 12 to 24 months we are in a fairly risky situation. Large consuming nations, particularly China, will feel pressed to enter international markets to bid up prices to unusual levels,” von Braun warned ahead of a speech today to the institute’s AGM in Beijing.
… The social tensions caused by rising food prices are already evident, says von Braun. “The first sign was the tortilla riot in Mexico city, where 70,000 took to the streets. I think that was only the beginning – there will be more,” said von Braun. “For a year or two countries can stabilise with stocks. But the risk comes in the next 12 to 24 months. The countries that cannot afford to buy will be the losers, while those with huge foreign exchange reserves will bid up the world market.”
Von Braun called on Europe to reconsider its biofuel policies, to provide more aid to poor nations, to keep markets open and to boost production.
The forces pushing up food prices
1 Rising consumption: The appetite of fast-growing nations, such as China, is rising as economic booms cause a surge in demand for meat and dairy products
2 Competition from biofuels: The cars of the rich are now rivalling the bellies of the poor for corn, cane and edible oils
3 Climate change: Global warming is putting pressure on water needed to irrigate crops
Complete article

The Daily Reckoning – Weekend Edition
June 16-17, 2007
At the recent Berkshire Hathaway annual meeting, Charlie Munger said, “The idea of cars running on corn has got to be the dumbest idea I’ve ever heard.”
Dedicated Daily Reckoning readers know that we are of that belief as well…but no matter how we feel about the nation’s misguided reverence for ethanol, the demand for the corn-based fuel is here to stay.
In fact, Congress has been looking over legislation that would require a “36 billion-gallon renewable fuel standard, nearly four times higher than the 7.5 billion-gallon standard required to be met by 2012,” reports the Chicago Tribune. And you can bet that the standard will be met with increased production of ethanol.
One of the obvious side effects of the ethanol craze is that the price of corn has risen 73 percent in the past year – but that isn’t the only food whose price is on the rise. Milk is likely to cost over $5 a gallon in some parts of the country, because dairy farmers have to pay more to feed their cows. And because animal feed with corn in it is more expensive, that cost trickles down to chicken, beef, eggs, cheese and … high fructose corn syrup.
Consumers are definitely starting to notice that their grocery bill is a bit pricier. Carl Weinberg, chief economist for High Frequency Economics, has warned that higher food prices could spell trouble for the U.S. economy.
“The trend in food prices did not go well in the 1970’s, and we fear that a repeat of that squeeze is in progress now,” he wrote last week.
The amplified demand for corn has also caused farmers to shift their fields to make room for corn, decreasing the supply of other grains, such as soybeans and wheat….
“The … [FAO] is reporting that nearly two-thirds of the winter wheat crop in western and northern China has been wiped out by a prolonged drought. Some other areas have experienced a 40-50% cut in the winter wheat harvest.

May 3, 2007
The looming impact of climate change, biofuels
… As concern grows over greenhouse-gas emissions and dwindling petroleum supplies, plant-derived fuels like biodiesel and ethanol are capturing international attention.
But environment and food security campaigners warn that the expected switch from food crops to biofuel crops could have a devastating effect for the world’s hungry population.
“The impact on global food supply will be catastrophic: [it will be] big enough to tip the global balance from net surplus to net deficit,” British activist George Monbiot wrote of biofuel development.
“If, as some environmentalists demand, it is to happen worldwide, then most of the arable surface of the planet will be deployed to produce food for cars, not people.” More

2 Comments on "Side effects of ethanol dependency – Update"

  1. Diana Thébaud Nicholson July 10, 2007 at 7:25 pm · Reply

    I offer my “Brazilian-biased” comments. The problem is not the core message (that corn ethanol is absurd, as this is true), but the logical sequence. If sugar cane ethanol could be slowly sourced (to a certain percentage – it is not a globally significant solution) from developing countries based on sustainable principles (like the nice Addis Ababa principles, may they rest in peace), this would be actually great!
    The idea is not to run cars on corn, but on ethanol. Sugar cane is much more efficient given current technologies… But then, sugar cane is produced by developing countries, so it’s probably out… The larger problem is that farmers in the US and Europe (traditionally sustained by fat and very perverse subsidies) see the corn ethanol as a great way out. Same for the subsidizing agencies: instead of being hammered for subsidizing unproductive agriculture due to political lobbying of farmers used to the subsidies, and taken to court at WTO for this, they can now claim that subsidies are just going to “climate-change-friendly” technologies, which by the way are also geopolitically essential as “we need to control these technologies and cannot go from dependency on OPEC to dependency on South America”… Great solution for everyone.
    BTW, in Brazil we’ve been facing the same problem for a long time: sugar planters can sell directly as sugar, or channel it to ethanol. When we began our ethanol-based energy project, PROALCOOL, people were scared that sugar prices would skyrocket. Well they did increase somewhat, but not too much, the imports compensated when prices came on too strong, and everything is peaceful now. Oliver Hillel (CBD)

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