New A&M Study Charges Ethanol Policy with Increasing Food Prices
By Forrest Burnson
For Reporting Texas and The Austin American-Statesman
Cleaner gasoline for America’s cars might mean more expensive food for everyone else. In the face of rising food costs worldwide, a coalition of environmentalists and economists are pointing to American ethanol policy as the culprit.
In 2007, Congress passed the Energy Independence and Security Act. The bill mandated and subsidized the increased production of ethanol, a fuel derived from corn, which can be used as an additive in gasoline. The benchmarks set on ethanol production by the federal government resulted in decreased availability of corn for food production, in addition to forcing farmers to dedicate more acreage to corn at the expense of other grains.
Corn intended for food production fell by 3 billion bushels from 2007 to 2011. Yet total farm acreage dedicated to corn production has steadily increased in the past decade, accounting for 84 million acres by 2011 — more than one-fourth of all farmable land in the nation — compared with 72 million acres in 2000.
Corn has thousands of uses, from sweetening sodas to feeding livestock. One-third of the U.S. corn harvest goes toward ethanol. And according to a recent study by Texas A&M University economist James Griffin, American ethanol policy has had the unintended consequence of dramatically raising food prices worldwide.
“There’s no question that ethanol has played quite a significant role in what’s happened,” he said, noting that the United States is the world’s largest producer and exporter of corn.
Among other provisions, the 2007 law mandated a steep rise in domestic production of ethanol, which can be blended with conventional gasoline. Domestic ethanol production clocked in at 4.9 billion gallons in 2006, but the bill set a benchmark of 36 billion gallons by 2022. Proponents of the bill contended that doing so would effectively lower the price of gas, bolster American energy independence and cut greenhouse gas emissions. The act overwhelmingly passed the then-Democrat-controlled Congress and was quickly signed into law by President George W. Bush.
Some of these benefits have materialized, to varying degrees. Though the most common form of blended ethanol gasoline — E10, denoting the 10-to-90 ratio between ethanol and gasoline — is less efficient, the costs to produce and refine ethanol are less. On average, a gallon of E10 costs 6.5 cents less to produce than conventional gasoline. The federal government subsidized ethanol production to the tune of 45 cents a gallon, or 4.5 cents for E10. Overall, this subsidy saved motorists $3 billion a year, according to Griffin.
Increased ethanol production — more than 900,000 barrels a day — has displaced nearly 6 percent of oil imports.
According to Griffin’s analysis, it has also had some effect on cutting greenhouse emissions by as much as 0.42 percent nationwide.
But the “unintended consequences” of the mandate, Griffin says, far outweigh these benefits. Though Congress ended the $6 billion-a-year ethanol subsidy in the beginning of 2012, the mandates for production remain in place.
Other economists contend that even though oil imports have decreased and carbon emissions have been reduced, the world economy will simply compensate.
The oil not purchased by the U.S. will be purchased by other nations, and the reductions in emissions at home will only be offset by Increased oil consumption abroad, according to Harry de Gorter, an economist at Cornell University.
“It’s analogous to cap-and-trade, when not everyone is capping and trading,” he said.
In 2007 and 2008, food prices worldwide reached an all-time high, due in part to rising oil prices, increased demand, and increased use of biofuels, prompting riots and civil unrest in more than 30 nations, according to the World Bank. Yet as the global recession hit, food prices — along with oil — went back down, while American production of ethanol has more than doubled.
The World Food Price Index, a measurement used by the Food and Agricultural Organization of the United Nations, was listed at 215 in February 2012. In 2007, before the new energy law went into effect, the index was listed at 159. The increase is due to a variety of factors beyond American ethanol production, including the global recession and rising oil costs. But Griffin and de Gorter contend that ethanol production is a significant contributing factor.
With no decline in sight for oil prices, it appears that food prices will continue to rise. The increase in ethanol production is responsible for at least 25 percent of the increase in food prices, according to Griffin, or as much 50 percent, according to de Gorter.
Their estimates are based on the rising cost of a bushel of corn for food purposes and its ubiquity in the world market. Between 2000 and 2005, a bushel of corn produced in the United States cost as much $2.50 — by 2011, the average price had risen to $7.50.
Environmental groups have also pointed fingers at U.S. ethanol policy.
Friends of the Earth, an international coalition of environmental groups, has long advocated for an end to the ethanol mandates. The organization pushed to end federal ethanol subsidies, an initiative that bore success last year.
Griffin’s study — funded by the Mosbacher Institute at Texas A&M, a policy center with ties to the oil industry — is disputed by pro-ethanol groups.
“The report from the Mosbacher Institute pushes a point of view that is contradicted by many other studies,” said David Gibson, executive director of the Texas Corn Producers Board.
Gibson referred to a Congressional Budget Office study published in 2009 that examined the link between ethanol production and rising food prices, stating that ethanol food production accounted for as much as 15 percent of food price increases — lower than the figure cited by Griffin.
Since 2009, however, ethanol production has been increasing, from 10.6 billion gallons a year to an estimated 14 billion gallons by 2014.
Geoff Cooper, vice president of research and analysis at the Renewable Fuels Association, contends that Griffin’s analysis is misleading because ethanol production contributes to the food supply.
“One-third of the corn that is used for ethanol comes out of the back end of the production plant in the form of livestock feed,” he said.
The Obama administration has largely supported ethanol mandates as part of its broader energy policy. So far, there has been no legislative initiative to end the mandates.
Still, Griffin hopes his study will change minds.
“Hopefully,” he said, “when people are aware of it, we’ll get something done.”
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