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Corn-Derived Ethanol Shares Blame for Food Price Hikes

16 October 2007
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In recent months food costs in the United States have gone up by well over six percent and some economists see government-mandated use of bio-fuels as a key reason. But, as VOA's Greg Flakus reports from Houston, both agriculture representatives and energy experts say development of such fuels will be necessary to feed an energy-starved world economy.

At the Bio-fuels conference here in Houston Monday, oil industry executives, venture capitalists and bio-fuel industry representatives focused on the future of renewable energy from the farm belt. With the price of oil rising almost daily and fears that world production will not be able to keep up with demand, experts are looking at every kind of alternative energy including ethanol and bio-diesel. But rising food costs associated with these fuels have raised concerns about their long-term viability.

Among conference speakers was John Ashworth of the National Renewable Energy Laboratory in Golden, Colorado, who told VOA the ethanol industry's reliance on corn has had some noticeable impact on food prices, especially meat.

John Ashworth of the National Renewable Energy Laboratory
John Ashworth of the National Renewable Energy Laboratory
"Because grain is valuable, when you take a good chunk of that supply out for making fuels, you are going to have upward pressure on the price of the raw material. Particularly for the cattle industry, which uses a lot of corn, when the price of corn goes up, then the price of beef is going to go up," he said.

But Ashworth doubts there will be a food-or-fuel choice facing humankind in years ahead. He notes that his research and most of the research being done by private bio-fuel companies looks beyond corn to so-called cellulosic feedstock, which basically means using waste material to produce fuel.

"All the research we are doing is not on corn, but on corn stover (leaves and stalk) or on wood chips or on lower-cost raw materials and I think that is where the industry will have to go," he said.

Rising consumer food prices have also had an impact on Congress, source of the subsidies which support the ethanol industry and the bills that require the use of more than 26 million liters of renewable fuels for transportation by 2012. Pearce Hammond, Vice President of Institutional Research for the Houston-based Simmons Company, says Congress may scale back support for ethanol.

Pearce Hammond
Pearce Hammond
"Ethanol used to be sort of a slam dunk in Washington. It is not anymore," he said. "The level of support has eroded a bit. That said, we have about 21 farm states, so you have about 42 senators who are automatically going to line up for this. I think you will see an extension, but maybe the generosity of the subsidies will be dialed back a bit."

Most farm region economists dispute the notion that ethanol is primarily to blame for the rise in food prices, noting that increased energy costs have played a role as have droughts that reduced production elsewhere. Many bio-fuel industry supporters say Congress should examine the long-term benefits of developing this alternative source of energy.

James Richardson, an agricultural economist at Texas A and M University, speaking with VOA by phone, says government mandates that favor ethanol have produced the cash needed for research and development on next generation fuels.

"Renewable fuel standards have two edges on the sword. It does increase acreage to corn right now, but it is going to provide the necessary R and D funds (research and development funds) for these new processes, which could reduce the amount of corn used for ethanol," he said.

He also argues that government subsidies that support ethanol production are cost effective overall for the U.S. government in that they reduce the amount that would be paid to farmers if corn prices went into steep decline.

"Currently we are spending about $2 billion a year on a subsidy for ethanol production, two and a half, approaching $3 billion a year on ethanol subsidies and there are estimates that this is saving probably $5 billion to $6 billion in government payments to farmers," he said.

Richardson and many other economists argue that support for ethanol and other bio-fuels could reap great benefits ten years or so down the road when processes are fully developed that utilize non-grain feedstocks to produce fuel. Most of the new investment in the bio-fuel industry now is being channeled to development of these new methods and new products, like butanol, an alcohol-based fuel that has greater energy density than ethanol and can be transported more easily. Industry spokesmen say all these new fuels will be badly needed as the world grows ever more hungry for energy.

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