The Consequences of Biofuels From Food

Posted on July 16, 2007
Filed Under Public Policy |

Achieving the 15 percent [domestic fuel] goal would require the entire current U.S. corn crop, which represents a whopping 40 percent of the world’s corn supply. This would do more than create mere market distortions; the irresistible pressure to divert corn from food to fuel would create unprecedented turmoil.
- Henry I. Miller, Hoover Institution

It’s quite remarkable that members of Congress seem oblivious to not only the technology behind ethanol, but also the simple economic principles that commodity markets operate on. Subsidizing ethanol production creates an economic incentive for farmers to divert corn from food stock to fuel stock and the consequences are real.

Until the recent ethanol boom, more than 60 percent of the annual U.S. corn harvest was fed domestically to cattle, hogs and chickens, or used in food or beverages. Thousands of food items contain corn or corn byproducts. A spokesman for one of California’s largest cattle ranches and feedlots noted that since the end of 2005, the company has experienced a 36 percent increase in the cost of feed, "which translates to an additional expense of $101 per head raised."

Ironically, part of the inflation in food, 3.9% in April, is due to higher transportation costs but without a doubt the rise in corn prices is being driven by Congressional actions in the area of biofuel. This is not to suggest that biofuel is not something that deserves this attention, but to subsidize domestic ethanol while imposing a tariff on imported ethanol and ignoring the basic science of corn-based ethanol, which gets pimped and protected because of a powerful lobby and a powerful congressional delegation from corn producing states is self defeating:

State: Senator (affiliation and related Senate committess)

Iowa: Senators Harkin (D - Agriculture, Appropriations) and Grassley (R - Agriculture)

Illinois: Senators Durdin (D - Appropriations) and Obama (D)

Nebraska: Senators Nelson (D - Agriculture, Appropriations) and Hagel (R)

It’s no surprise that we are seeing a gorging on corn-based ethanol to the exclusion of other fuel stocks, regardless of the fact that corn has less energy than competing sources and costs more energy to produce.

While I’m optimistic about cellolosic ethanol (switch grass) the reality is that this is a technology that needs to further develop and then have infrastructure built to deliver it. The actions of Congress that are leading to the current gorging on corn ethanol are going to have consequences sooner rather than later  and then there will be another reactive grab bag of legislation that will create even more problems.

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