Why Biofuels Help Push Up World Food Prices

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Andreas Gebert / DPA / Corbis

A man fills up his car's gas tank with ethanol in Munich

It's easy to miss amid the drama of Egypt — though the two stories are connected — but the world is in the grip of a full-blown food crisis. According to the U.N., world food prices hit a record high in January, meaning food is now more expensive than it has ever been in real terms since the U.N. first began tracking the numbers in 1990. Grains, in particular, are more expensive than ever, with corn prices up 53% in 2010, wheat up 47% and rice now at its highest level in more than two years. At a time when much of the global economy is still struggling to bounce back from the crisis of the past few years, high food prices could push millions back into poverty and cause millions more to go hungry. "The impact is really being felt, especially in outside the U.S.," says Marie Brill, the senior policy analyst at the antipoverty NGO ActionAid USA.

Less clear is what's actually behind the spike in food prices. Bad weather plays a major role — a devastating heat wave in Russia last summer ruined grain harvests and prompted that country to suspend exports, jolting global markets. Excessive heat in the Midwest stunted the corn crop, leading to a 5% drop in production last year. Rising demand for food — especially meat, whose production requires lots of grain and water — in the richer parts of the developing world is straining supplies. And then there's ethanol, the production of which sucks up grain and cropland that could be used for food. In America, 40% of the corn crop is currently diverted to make fuel for cars. "Ethanol uses 4.9 billion bushels of corn in the U.S.," says Lester Brown, president of the Earth Policy Institute, an environmental think tank. "That's enough grain to feed 350 million people."

Princeton researcher Tim Searchinger, in a column last week in the Washington Post, argued that biofuels are contributing to the food crisis. He noted that biofuels — both corn-based ethanol in the U.S. and biodiesel, which depends on palm oil, elsewhere — now consume more than 6.5% of the world's grain and 8% of its vegetable oil. That's up from 2% and virtually nothing in 2004. In a tight world food market, tightened by bad weather, that diversion of grain and oil makes a difference for food prices, especially in developing countries where a rise in the price of staples is passed directly to consumers. (In developed countries, marketing and packaging often make up the lion's share of food value, cushioning consumers from a rise in staple grains.) "Today, the market is out of equilibrium," Searchinger wrote.

While this year's food-price spike hasn't been thoroughly analyzed, the world went through a similar crisis just around three years ago. In 2007 and 2008, grain prices hit what had been record highs, prompting food riots in a number of developing countries, just as they do today — the high price of bread may have helped spark protests in Tunisia and Egypt. A major review of the 2007-08 food crisis by the International Food Policy Research Institute found that the surge in U.S. corn production for biofuels played a key role in the increase of prices. A 2008 report by the World Bank agreed, pegging the rise of biofuels in Europe and the U.S. as the most important factor in the run-up of prices. "It's pretty simple — corn that could go for food or fuel is diverted to fuel," says Brill. "That influences prices."

The ethanol industry in the U.S., though, is hitting back against the suggestion that it is pushing up food prices. In a press call on Friday, Growth Energy CEO Tom Buis complained that a "highly well-funded and highly orchestrated campaign of misinformation" was overstating the impact of biofuels on food prices. While 4.9 billion bushels of corn may be used for ethanol in the U.S., Buis said that the industry uses "No. 2 yellow corn" — a strain fed to animals, not humans. Also, some of the corn remains after its distillation for food. The industry claims that up to 2 billion bushels of that original 4.9 billion can be recovered and used for animal feed, blunting the impact on food prices. "Ethanol today is 10% of our nation's fuel consumption," said Buis. "If it went away, you would have to find more petroleum to replace that, and you'd see fuel prices go up."

No one is arguing that biofuels are solely responsible for driving up food prices. Rising demand and bad weather play significant roles — droughts, heat waves and floods could become more common in the future as the climate warms. Speculators who buy up food futures as investments contribute to price volatility, too, though it can be tough to trace their exact role. But it's clear that in a tighter market, diverting corn and other crops to biofuels will only act to raise prices. That might be worth it if biofuels provided substantial environmental and economic benefits, but there's significant research showing that corn ethanol's carbon footprint isn't much better than that of oil. Nor has ethanol done much to wean the U.S. off foreign oil — replacing 90% of our oil consumption with ethanol would require four times more corn than American farmers produce in total. The world will have 219,000 more mouths to feed tomorrow, and another 219,000 the next day. We'd be wise to use our food for food, not for fuel.