May 26, 2008

Corn-fused

Posted by Sarah Burris at 12:34AM

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For the past few weeks news sources have talked about the dangerous influence alternative fuels have on our cost of food.

"The recent rise in corn prices -- almost 70 percent in the past six months --caused by the increased demand for ethanol biofuel has come much sooner than many agriculture economists had expected. . . And that increase, says Marshall Martin, an agriculture economist at Purdue University, "is the main driver behind the price increase for corn."

No disrespect to Marshall Martin, but the price of corn isn't quite a simple as blaming it all on biofuels.

I spoke with Jim Martin (no relation to Marshall) who is on the Federal Technical Advisory Committee for Biomass Research and Development, and he confirmed that blaming it all on ethanol neglects a number of other factors that don't always fit into a 30 second analysis.

According to Jim Martin, in 2007 the USDA reported that the US produced over 13 billion bushels of corn, the biggest corn crop ever.

"That was 2.5 billion bushels more than in 2006. In the same year, 2007, demand for corn to make ethanol went up by a billion bushels, increasing supply over and above ethanol demand, by about a billion and a half more bushels in the US than the year before. Normally that would create a surplus and prices would have fallen. They did fall for a while in late 2007, but have bounced right back up...

"Ethanol was not the only thing driving up demand. Corn exports soared in 2007 and remain very strong. Demand for corn for feeding animals is also increasing, creating more meat and dairy to feed people. Even production of high fructose corn syrup increased, the biggest direct food use of corn increased.

"What is happening to all that extra food? Americans are eating more of it, but it is also being exported at record rates. Growing economies like China and India are buying US-produced grain, meat and dairy products at record rates. That demand is pushing up prices in the US. But the funny thing is prices in many other parts of the world are not increasing as rapidly."

At the same time fuel prices are driving up costs because transportation of products is over $4 a gallon for truck diesel. Last year, for example, the cost of coffee, milk, and whipped cream all went up so much that major coffee shop chain Starbucks wasforced to raise its prices. And we don't even use coffee or whipped cream to fuel our cars.

This is causing trouble beyond coffee and popcorn, as Oklahoma Horizon reports, it influences things like pizza as well.

Jim Martin attributes these price spikes in large part to a weak dollar:

"As the value of the dollar falls against other currencies, US produced goods become cheaper and prices of imported goods increase. World prices for commodities increase in dollars but may not rise or at most increase less in stronger currencies. That is just what has happened in other agricultural commodities.

"The prices of coffee and cocoa have increased by about the same percentage as corn and soybeans. We don’t make biofuels out of coffee and world production has not gone down. The price has gone up almost 70% in US dollars, but in Columbia or Brazil coffee prices are up only slightly."

He agrees there are a few exceptions like wheat and rice that have fallen globally due to poor crops, but on the whole demand grows as global financial stability grows and more people can afford food.

So, the sort answer is yes, ethanol is raising the price of our food. Martin quotes economist estimations anywhere from 5-10 percent. Only 5-10 percent of our food cost is impacted by ethanol. This is against a total rise of over 80 percent in two years.

The greatest influence in his mind is the devaluing of our US currency. According to Martin, currencies lose value when other countries hold an increasing amount of debt against another country.

"Our record federal and trade deficits in the US are weakening the strength of the dollar. Rising exports of agricultural commodities like corn, soybeans and wheat help balance our cost of imports of foreign oil. They are not doing much to correct the problem of rising deficit spending by the federal government, however. Some day we will have to pay that back. Until then, we pay the cost in weak dollars every time we fill up with gas or buy a carton of milk."

For more check out the International Food Policy Research Institute, specifically their presentation on Food Prices, Biofuels, and Climate Change (PDF).

In the end, don't believe the hype about stopping the use of biofuels or alternative fuels because we're all going to starve. Similarly, don't believe the misnomer that we don't have enough corn to use for ethanol. Or that corn is the only biofuel we could be using. We are just beginning to skim the surface of alternative fuels and we are lucky that with further study and work, the coming years will yield more opportunities and help us lower our cost of fuel.