Food vs. fuel

By Greta Weiderman
CIBM Editor

Central Illinois corn growers are enjoying the benefits of corn prices that have nearly tripled from about $2 a bushel in late summer 2006 to about $5.50 a bushel today, and ethanol production is pushing those prices up.

Proponents of corn ethanol say it's helping lessen the impact of increasing crude oil prices, while critics argue that its production is increasing global greenhouse-gas emissions and contributing to higher food prices worldwide.

Corn ethanol production in the U.S. has increased almost threefold since 2005 and uses nearly one-fifth of the U.S.'s corn crop, according to Madhu Khanna, a professor of agricultural and consumer economics at the University of Illinois.

The main federal subsidy for corn ethanol is an income tax credit of 51 cents per gallon for companies that blend ethanol with regular gasoline. That mixed with a 54-cents-a-gallon tariff on imported ethanol has pushed the industry forward.

The recent Energy Bill mandates renewable fuel production of 36 billion gallons a year by 2022. Of this, 15 billion gallons is expected to be corn-based ethanol, which would represent less than 10 percent of annual gasoline consumption in the U.S. and require using 50 percent of the United State's current corn production for fuel production, Khanna said. This will cause a reduction in corn exports and an increase of world prices of food and feed, she said.

Darrell Good, a professor of agricultural economics at the University of Illinois at Urbana-Champaign who researches agricultural commodities, said the increase in corn prices has contributed to an increase in food prices in the United States of about 5 percent this year.

"The bigger concern may be the impact in developing countries," he said.

Since food is processed less in developing countries, dramatic increases in crop prices are passed on to the consumers more, Good said.

Gale Summerfield is an economist and director of the Women and Gender in Global Perspectives program at the University of Illinois at Urbana-Champaign.

"The food riots that have been going on in countries around the world right now show that these issues are not being adequately addressed," she said, referring to riots in Haiti and Egypt.

Several other factors have contributed to the global increase in food prices, including the increasing populations and economic growth in China and India and a small worldwide crop of wheat and soybeans, Good said.

"We've had two years of a relatively small world wheat crop, which has increased the demand for corn as well," Good said. "The good news is that we're on our way to a substantial increase in worldwide wheat production."

Good said that domestically, factors in the energy sector like manufacturing costs, transportation and packaging have increased food prices more than higher crop prices.

Corn may continue going up in price, and it's unlikely supply will catch up with demand this year. A March U.S. Department of Agriculture survey of U.S. farmers indicated that they plan to plant 86 million acres of corn this year, down from 93.6 million acres last year, Good said. But corn prices have continued to increase, while wheat and soybean prices have decreased, so farmers may adjust their plans.

"The question is, of course, what will they plant versus what they said they would plant?," Good said.

Another concern is the environmental impact of biofuel production.

Two studies published in the journal Science in February indicated that biofuels could contribute to an increase, rather than a decrease, in global greenhouse-gas emissions.

There is no doubt that ethanol is a better alternative as a gasoline additive than the chemical Methyl, which was used in the past but found to cause groundwater contamination and has been banned, Khanna said.

But producing corn-based ethanol has some environmental drawbacks. It requires considerable inputs of fossil energy and additional use of nitrogen fertilizer, causing nitrate runoff that can adversely impact water quality.

Good, however, said, "The current research would suggest that more energy is produced than used when corn ethanol is made."

He also said that corn ethanol production creates more energy in the form that it's needed--liquid fuel.

Increasing the supply of fuel by blending ethanol with regular gasoline has likely prevented fuel prices from increasing even more, Good said. Studies are being conducted to estimate exactly what this price impact has been.

"Liquid gas prices at the pump have not gone up at as high a rate as crude oil," he said.

Summerfield stressed that other options need to be explored.

"We have gone in a direction of over promoting and over subsidizing the biofuels, and we need a broader base of alternative energy policy," she said.

Alternatives to corn ethanol include switchgrass, crop residues like corn stover, wheat straw and municipal wastes.

Miscanthus and switchgrass are high yielding perennial grasses that can be grown under a wide range of conditions in the Midwest and South.

"They have the potential to more than double the gallons of ethanol that can be obtained per acre and are expected to have a significantly lower greenhouse-gas intensity than corn ethanol," Khanna said. "These grasses also reduce soil erosion and nitrogen runoff."

But technology must still be developed to convert these grasses into biofuels.

In February 2007, The University of Illinois at Urbana-Champaign, the University of California at Berkeley and the Lawrence Berkeley National Laboratory formed the Energy Biosciences Institute, a $500 million research program to explore the potential benefits and environmental impact of using corn crop residues, switchgrass, Miscanthus (a hybrid grass) and other herbaceous perennials as fuel sources.

- Greta Weiderman is editor of Central Illinois Business Magazine. She can be reached at (217) 351-5695 or gweiderman@news-gazette.com.