Biofuels and the Price of Food

April 16, 2008

World Bank President Robert Zoellick 

Also at the White House press conference on Monday (previously discussed here), Press Secretary Dana Perino was asked about worldwide food shortages and whether President Bush feels “any responsibility himself for that, because he’s been such a hard backer of ethanol,” specifically corn-based ethanol which some claim is driving up the price of food.

Perino responded:

There are a lot of factors that go into higher food prices or food shortages in countries that need help in order to feed their populations. One is demand; demand is extremely high. You also have transportation costs. And of course energy costs come into that, when people are trying to move food from one place to the other. In addition, you have weather-related events, such as the drought in Australia, in which their wheat crops have been not as fruitful as in the past, and so the prices have gone up there.

We recognize that moving from an oil-based economy to one that’s based more on renewable or alternative fuels is going to be one that requires a transition period. That’s one of the reasons that the President, in the State of the Union in 2006, suggested that we move to cellulosic ethanol, which, as you remember, the famous line of using switchgrass or wood chips.

But that technology is advancing, and the President was able to go to a Dole plant where they were showing how to — I’m sorry, I’m not sure if it was Dole, excuse me. I can’t remember the name of the plant, but I remember going to the event, and looking at how the scientists were approaching this issue with gusto, with a lot of money behind them, because there is going to be demand for alternative fuels, because we realize that we have two problems: one, we are too dependent on foreign sources of energy; and two, we have environmental concerns that we want to address.

The question came amid reports of riots in Haiti, Bangladesh, and Egypt (along with recent reports of riots in Senegal, Cameroon and Côte d’Ivoire) over the soaring costs of food. The White House said Monday it planned to make $200 million in emergency food aid available through the U.S. Agency for International Development.

Also on Monday, Jeffrey Sachs, director of Columbia University’s Earth Institute, spoke out against biofuel policies like the U.S. mandate to produce corn-based ethanol: “We’ve been putting our food into the gas tank — this corn-to-ethanol subsidy which our government is doing really makes little sense.”

At the moment, no one is questioning whether there is a global food crisis. The debate is over why food prices are surging so suddenly now and how much can be attributed to increasing demand for biofuels. An article in the Houston Chronicle on Sunday had this take on the situation: “According to the head of the United Nations Food and Agriculture Organization, Jacques Diouf, the world’s poorest countries can expect the cost of imported food to rise 56 percent, even though the world’s cereal production is forecast to increase slightly. That will spell extreme hardship for developing countries that already spend a large portion of their gross domestic product to buy food from abroad.”

New York Times reporter Andrew Martin offers a “news analysis” piece on the food versus fuel debate titled, “Fuel Choices, Food Crises and Finger-Pointing.” As Martin points out, it is difficult to figure out how much of the rising price of food can be attributed to the growing demand for biofuels. “Many specialists in food policy consider government mandates for biofuels to be ill advised, agreeing that the diversion of crops like corn into fuel production has contributed to the higher prices,” Martin writes. “But other factors have played big roles, including droughts that have limited output and rapid global economic growth that has created higher demand for food. That growth, much faster over the last four years than the historical norm, is lifting millions of people out of destitution and giving them access to better diets.”

Martin points to C. Ford Runge, director of the Center for International Food and Agricultural Policy at the University of Minnesota, who agrees that it is “extremely difficult to disentangle” the impact of biofuels on food costs. Runge, it should be noted, co-authored an article last year on “How Biofuels Could Starve the Poor” (in the May/June 2007 issue of Foreign Affairs).

Martin also points to the International Food Policy Research Institute (IFPRI) in Washington, which has suggested “that biofuel production accounts for a quarter to a third of the recent increase in global commodity prices,” and a U.N. agency that predicted late year that biofuel production would increase food costs by 10-15 percent.

Meanwhile, at a press conference on Sunday (transcript here), World Bank President Robert Zoellick claimed there is a clearcut connection between biofuels and rising food prices: “Our work shows and other work shows, there clearly is an issue linked here with some of the food‑based biofuels that has got to be part of the puzzle.... I mean, the biofuels are clearly linked to what’s going on in the underlying energy market more generally, you also have changing diets. You have the higher energy price affect the ability to produce food.” Zoellick, who also addressed the subject last week (where he used food props, as pictured above) and in a recent NPR interview, has been referring to a new World Bank report that examines the connection between increased biofuel production and the rise in food prices. That report finds the following:

  • increases in global wheat prices rose 181 percent over the 36 months leading up to February 2008;
  • overall global food prices increased by 83 percent for the same period;
  • food crop prices are expected to remain high in 2008 and 2009 and then begin to decline;
  • from 2004 to 2007, global corn (maize) production increased 51 million tons, and biofuel use in the United States increased 50 million tons;
  • U.S. wheat export prices rose from $375/ton in January to $440/ton in March;
  • Thai rice export prices increased from $365/ton to $562/ton.

The report bluntly concludes that “increased biofuel production has contributed to the rise in food prices.” It specifically points a finger at U.S. policies and corn production:

Almost all of the increase in global maize production from 2004 to 2007 (the period when grain prices rose sharply) went for biofuels production in the U.S., while existing stocks were depleted by an increase in global consumption for other uses. Other developments, such as droughts in Australia and poor crops in the E.U. and Ukraine in 2006 and 2007, were largely offset by good crops and increased exports in other countries and would not, on their own, have had a significant impact on prices. Only a relatively small share of the increase in food production prices (around 15%) is due directly to higher energy and fertilizer costs.

The World Bank report says the benefits of biofuels — energy independence, less reliance on oil, and reductions in emissions of greenhouse gases — “have to be weighed against the potential costs of rising food prices” and points to a recent IFPRI study that finds “most scenarios of increased use of biofuels imply substantial trade-offs with food prices. These trade-offs are dampened, although not eliminated, when technological advances in biofuel and crop production are considered.”

posted by Stephanie Cohen | 0:32 am
File As: Energy Policy, Biofuels

Nothing left to eat?

The impact of biofuels on the food supply and the environment
April 9, 2008

Peter Brabeck-Letmathe, chairman of the giant Switzerland-based beverage and snack-food maker Nestlé, told news outlets last weekend that if the world goes ahead and uses biofuels to replace 20 percent of the growing demand for oil products there will be “nothing left to eat.” Sound extreme — or maybe just extremely unlikely?

Nestlé, like many other companies, is concerned about the rising costs of raw materials used to make its products. Those rising costs are at least partially attributable to the growing demand for corn-based biofuels, which are in turn partly spurred by what Brabeck-Letmathe has angrily called “morally unacceptable and irresponsible” subsidies for biofuel production.

In a March 13 press release, Nestlé said,

During 2007 and in the current year, commodity markets have been characterized by sharp upward movements and increased volatility. This reflects strong global demand for food, accelerating usage of food raw materials for biofuels and the decisive presence in the market of non-traditional speculative players.

These higher costs for ingredients “forced” the company to “advance price increases for finished goods in order to partially absorb the higher input costs.” The result: an “outstanding organic growth rate for the first two months” of 2008. As the Times of London noted: “Nestlé is making money from the soaring cost of commodities, with the Swiss multinational forcing consumers to absorb the higher price of its food products containing milk, cocoa, coffee and cereals.” It’s far from clear that biofuels will be bad for Nestle’s bottom line.

Perhaps more worthy of consideration is a new study in the Proceedings of the National Academy of Sciences suggesting the biofuels boom in the U.S. will lead to more nitrogen from fertilized cornfields flowing into the Mississippi and Atchafalaya Rivers and then gradually making its way down to the Gulf of Mexico each summer. The authors, Simon Donner of the University of British Columbia and Christopher Kucharik of the University of Wisconsin, are concerned that growing more corn to produce ethanol as required under the U.S. federal government’s biofuels mandate will load the rivers with nitrogen and increase the size of the huge “dead zone” in the Gulf — the area of low-oxygen waters caused by nitrogen pollution from the Mississippi. The U.S. biofuels mandate will lead to more corn being grown to produce more ethanol (36 billion gallons by 2022) and more fertilizer being used in the process.

The study “is not an indictment of ethanol or biofuels, rather an analysis of the environmental effects of the preferred means of current ethanol production in the US (corn),” Donner said on his blog. “If biofuels were being produced on marginal lands without chemical fertilizer or from wastes, the story would be very different,” he added. The study concludes that “the projected expansion of corn-based ethanol production could make the already challenging goal of reducing nitrogen export by the Mississippi and Atchafalaya Rivers to the Gulf of Mexico practically impossible without radical shifts in feed production, diet and agricultural land management.”

Putting ethanol under the microscope has become a national mission — see Time magazine’s decision last week to label biofuels a “scam” — at a time when U.S. lawmakers are responding to pressure from environmental and national security groups to look for alternatives to oil, even less than perfect ones. If we want new fuels, we’ll have to make some hard choices, as Donner and Kucharik’s study makes clear. Every energy resource leaves its own footprint, and society will have to decide which ones it is willing to tolerate. Coal, nuclear, oil, and liquid natural gas terminals have increasingly been deemed unacceptable. What's left on the table?

In related news, a study published this week in Chemistry & Sustainability, Energy & Materials says George Huber of the University of Massachusetts-Amherst and his graduate students directly converted plant cellulose into “green” gasoline components — an alternative to bio-based ethanol that apparently uses less energy and could be available in the next five to ten years, according to ScienceDaily.

posted by Stephanie Cohen | 3:49 pm
File As: Energy Policy, Biofuels