The United States is drunk off ethanol. If this were a literal truth, we'd all be having a lot more fun. But in sober reality, ethanol hysteria has finally started to affect us at home. In the U.S., ethanol is made primarily from corn-grain fermentation. Since most food items can be traced back to corn (cereals, soft drinks, meat, dairy, etc), it was only a matter of time until surging corn prices manifested themselves in higher grocery bills for everybody.

There are some 45,000 items in the average American supermarket, and more than a quarter of them contain corn (9)."

Experts are blaming the heightened cost of animal feed (for cows, chickens, pigs, turkeys, etc.) on 30% increase in corn-grain ethanol from 2006-2007 (US DOE).

"Egg prices are on the rise, nearly 30 percent higher than they were at the end of 2006, according to a survey by the American Farm Bureau Association. The national average for a dozen large eggs is $1.51, 33 cents higher than at the end of the fourth quarter 2006.[...] John Mitchell…and his dad keep their cows on a farm near Hudson, Wisconsin. The Mitchell's purchase their feed, which is largely made up of corn. Mitchell said corn prices are almost double what they were last year. He sees truckloads of corn headed off to ethanol plants in the area." (1)

Increasing corn prices are rippling throughout the food chain, directly and indirectly affecting other commodity prices. Wheat and soy prices, for example, are increasing because of consumer substitution and competition for cropland:

Corn prices have doubled over the last year, wheat futures are trading at their highest level in 10 years, and rice prices are rising too. In addition, soybean futures have risen by half. A Bloomberg analysis notes that the soaring use of corn as the feedstock for fuel ethanol “is creating unintended consequences throughout the global food chain.” [...] In the United States, the U.S. Department of Agriculture projects that the wholesale price of chicken in 2007 will be 10 percent higher on average than in 2006, the price of a dozen eggs will be up a whopping 21 percent, and milk will be 14 percent higher. And this is only the beginning.(2)

Other consequences are affecting farmers, who are now scrambling to increase their share of an increasingly lucrative crop.

Mel Shotliff is planning to plant about 500 more acres of corn this year on his rural Evansville farm. That's a 40-percent increase from the 1,250 acres he planted last year. But the surge in corn acres that will be planted in coming weeks comes with risks, he said. Ethanol production is driving up corn prices, but expenses are going up, too, making it "really kind of scary and stressful," Shotliff said. In Rock County, analysts expect farmers to mirror a national trend by planting about 15 percent more corn that the 152,000 acres planted last year. Shotliff thinks the increase could be 20 percent or more. Nationally, farmers are expected to plant 90.5 million acres of corn, according to the U.S. Department of Agriculture. That would be the most corn planted since 1944" (4).

But higher corn prices don't always translate into more money if farmer's pockets. Growing corn requires intensive fertilizer and pesticide application, which add up to higher production costs:

While there's plenty of media reports about farmers getting a higher price for corn, stories aren't showing all the increased costs for farmers, Shotliff said. "In the last three years, my expenses have gone up about 50 percent," he said. "There's so much more invested and at risk. You can't control the weather or the market." First there's more nitrogen and fertilizer needed for more acres. Then add the rising costs for equipment fuel and LP gas for drying the corn, Shotliff said. "You never see that. People just see, 'Oh the corn prices are up." [...] "There's concerns about the variables that we can not control," he said. "There's so many risks. It's a lot more stressful."(4)

These are small potatoes compared the international consequences of using food as fuel. In Mexico, the price of tortillas doubled in late 2006 (from $2.80 to $4.20/bushel), forcing the Mexican government to cap corn prices (3). Since the United States supplies 80% of Mexican corn (and 40% of total corn production, or half of all corn exports), it's seems clear that the combination of increasing ethanol production, speculation, and hoarding led to the increase. Half of Mexico's population lives in poverty and was directly affected, since tortillas are the dietary staple, and Mexico's situation may portend bitter consequences for the rest of the world as well.

Food prices are also rising in China, India, and the United States, countries that contain 40 percent of the world’s people. While relatively little corn is eaten directly in these countries, vast quantities are consumed indirectly in meat, milk, and eggs in both China and the United States."(2)

While primarily an issue of transportation, and of little consequence to many Americans, the situation has serious implications for the majority of the world's population (2.7 billion live on less than $2/day).

[F]illing the 25-gallon tank of an SUV with pure ethanol requires over 450 pounds of corn — which contains enough calories to feed one person for a year (3,6).

If trends continue, we may see even higher global commodity prices in the future. The International Food Policy Research Institute estimates that global corn prices will increase by 20 percent by 2010 and 41 percent by 2020. Oilseed crops, like soybeans, are projected to see price increases of 26 percent by 2010 and 76 percent by 2020. Wheat prices are projected to increase 11 percent by 2010 and 30 percent by 2020 (3).

The danger, then, is that Americans, being rich, will…eat meat and…drive ethanol cars, and because our own grain is going to produce ethanol, we will import more grain, grown in poorer nations, to feed our livestock. We are doing this right now, and it is already raising the price of grain. Poor nations will be unable to compete, and unjust trade policies will continue to have them export food to us while they go hungry (8)."

Lester R. Brown of the Earth Policy Institute may have said it best:

Tying food prices to energy economics is a dangerous game and, as usual, the poor will accept the most severe consequences as staple commodity prices increase everywhere. More severe urban food protests, like those already seen in Mexico, could become commonplace and contribute to political instability in already tenuous areas. US policy makers seem oblivious to the consequences…(2)"

Before abdicating responsibility for the 'ethanol mania' gripping the nation, let me remind you that we are paying for it in the form of corn and ethanol subsidies. In 2005 direct corn subsidies were $8.9 billion (3) and the cost to taxpayers, according to the International Institute for Sustainable Development, was between $5.5 billion and $7.3 billion a year (5). Even The Economist raised an eyebrow at current ethanol policies:

"Why is the government so generous? Because ethanol is just about the only alternative-energy initiative that has broad political support. Farmers love it because it provides a new source of subsidy. Hawks love it because it offers the possibility that America may wean itself off Middle Eastern oil. The automotive industry loves it, because it reckons that switching to a green fuel will take the global-warming heat off cars. The oil industry loves it because the use of ethanol as a fuel additive means it is business as usual, at least for the time being. Politicians love it because by subsidising it they can please all those constituencies. Taxpayers seem not to have noticed that they are footing the bill. (5)"

Things are likely going to get worse before they get better. The new Renewable Fuels Standard (look for a post on this soon) requires that 7.5 billion gallons of renewable fuel be blended into motor vehicle fuel by 2012. Lawmakers are already looking at pushing this number to 35 billion gallons by 2017. Not all of this will be corn-grain ethanol, but car manufacturers have already said they could make half their cars and trucks capable of running on E85 by 2012, provided the fuel was readily available.

And it may not be. US grain reserves are at their lowest level in 34 years, and by 2008 there will already be more ethanol distilleries online than the corn supply can support - at least 200 ethanol plants were in a planning stage at the end of 2006 (6). In January, Chief Economist for the U.S. Department of Agriculture, Dr. Keith Collins, said that increased ethanol demand could require an additional 1 billion bushels of corn:

Looking ahead to the 2007 crop of corn, it is quite likely, based on current ethanol plant construction, that corn used in ethanol production will rise by more than 1 billion bushels from the 2.15 billion bushels of the 2006 corn crop expected to be used for ethanol. Use of 1 billion bushels, at a trend yield of 152 bushels per acre, would require an additional 6.5 million acres of corn, if corn consumed in other uses remains unchanged from this year’s projected levels (10)."

Many ethanol proponents are betting on a wide-scale transition to cellulosic ethanol, but this is risky business considering the consequences of being wrong.

The stage is now set for direct competition for grain between the 800 million people who own automobiles, and the world’s 2 billion poorest people. The risk is that millions of those on the lower rungs of the global economic ladder will start falling off as higher food prices drop their consumption below the survival level (2)."

But all is not yet lost. Steps can be taken to avert the disaster of a crop-based fuel economy. A 20% increase in fuel efficiency standards would supplant the 2% of corn harvest currently being used as fuel (6). Better public transportation and a transition to plug-in hybrids (which would make short-distance driving use only electricity) could make up the difference.

In any case, corn-grain ethanol is a bad idea. This is one part of the biofuel portfolio that should be reigned in before more serious consequences unfold.

(1) Shell Shocked: Egg Prices On The Rise (April 4, 07)

Photo Credit: China Daily