Biofuels backlash grows in fuel versus food debate

Biofuels backlash

11 February 2008 00:00  [Source: ICB]

Is 2008 going to be the year that society decides that biofuels are not such a good idea? Some of the signs for the nascent biofuels industry are ominous

Simon Robinson/London

BIOFUELS ARE under siege, and the pitch-forks from the masses are finding their mark.

There is talk of food prices rising because of the diversion of corn (about 25% of the US crop in 2007) into ethanol production. There is resistance from communities where water is scarce, against ethanol plants being sited in their neighborhoods.

The price of food is rising across the world, and in some countries where food is scarce or incomes are low this has caused civil disturbances. In the past year there have been protests about the price of corn or wheat in Yemen, where one person died and there were well publicized riots in Mexico in January 2007 over the price of corn, which is used to make tortillas.

The rising price of wheat is also hitting Americans closer to home, with reports that the price of bagels in New York has risen dramatically because of a shortage of wheat.

The United Nations Food and Agriculture Organization's (FAO) Crop Prospects and Food Situation report published in October 2007 shows that the world grain supply and demand situation is moving closer into balance and that stockpiles are dwindling.

According to the FAO, the annual average price of corn (US No. 2, US Gulf) has risen 85%, from $88.38 (€59.71)/short ton in 2000 to $164.26/ton in 2007. In the same period, the annual average price of wheat has grown 137%, from $98.75/ton to $234.76/ton.

The rate of annual price increases is accelerating. In 2007, according to the FAO, the price of a ton of corn in the US rose by 34% and the price of a ton of wheat rose by 48 % compared to rises of around 24% for corn in 2006 and 34% for wheat in 2006.

Those in the developing world eat less processed food than those in developed countries so they are much more exposed to price changes. Of if they are not, their governments, which may try to control the domestic price of grains, will feel the pressure, giving an international dimension to the challenges that biofuels face.

WHERE ARE RISING FOOD PRICES REALLY COMING FROM?

In the developed world, the price of staple crops may be a small proportion of the total cost of food, but people still worry.

"Skyrocketing interest in and use of ethanol in the past two years has had a strong impact on corn prices," says Jim McLaren, president of StrathKirn, a St. Louis-based technical analysis company. "However, the $2 [per bushel] price increase in corn simply isn't the accurate cause for the massive inflation in the food chain. When you consider that a 14-oz box of corn flakes contains just 3 cents worth of corn, even a doubling of the corn price doesn't have that much impact."

Other impacts that hit the consumers of processed food include changes in energy costs, which includes the price of fuel to transport components along the chain.

McLaren's firm surveyed changes in the US price of corn, beef, oil and oranges from 1999 to 2006. The survey shows that the real price of oil has increased dramatically compared to corn beef has increased but less than inflation and oranges have risen slightly faster than inflation.

"One of the most important findings showed that the price of corn is actually lower now than it was 20 years ago, and in fact, the price has been declining in real terms with the exception of the past year" says McLaren. "Clearly, the corn price has not kept pace with the general level of inflation. It begs the question: Is the price of corn too low compared to the value of all its possible uses?"

It is irrelevant whether as society we want the price of food crops tied to the price of oil, but if the proportion of the world crop of food grains going into gasoline increases, then the connection between the two prices will strengthen.

Currently, there is a huge excess of grain production over fuel consumption and until the market gets tighter, the link will remain weak. But it will not stop people linking that the corn price is rising because of ethanol production.

WATER, WATER, EVERYWHERE

Water is another issue where the biofuel industry will have to handle pressure from society. Not only does it take water to grow crops, but it takes water to make ethanol.

In the Western US, water is likely to become a defining political issue in the next decade, according to The Drying of the West, an article by Robert Kunzig in National Geographic magazine.

"A comprehensive study of climate models reported in Science predicted the Southwest's gradual descent into persistent Dust Bowl conditions by midcentury," Kunzig states.

As that happens, the price of water will rise and ethanol plants, which are major consumers of water, will see pressure.

Already, US-based food company ConAgra has pulled out of a planned ethanol plant in Colorado because of the higher cost of water, according to Albuquerque, New Mexico, Albuquerque Journal newspaper.

But as well as being problems, these are real opportunities for the biofuels industry. The US's headlong dash into distilled ethanol could spur greater funding for second generation biofuels and other production technologies, such as pyrolysis of ceullulosic waste and possibly garbage, which could be less dependant on water and should be less dependent on food crops.

In areas where there is plenty of water, it could also be an opportunity for farmers.

In the EU, a considerable proportion of farm land is fallow. This is designed to give farmers some price support and offers ecological benefits. In a letter outlining the UK farming industry's position, the National Farmers Union (NFU), a trade association, says British farmers have the capacity to produce a significant proportion of the feedstock needed for the biofuel market.

The NFU estimates around 900,000 hectares (2.2m acres) will be needed to achieve the government's target of a 5% inclusion of bioethanol in petrol by 2010. This can be sourced from land already being used, to grow surplus wheat and that which is set aside under EU regulations.

With careful siting in the wet UK, there should be no difficulty in making sure there is enough water to grow the crops and process them into fuel.

DON'T FORGET THE DUCK HUNTERS

Duck and pheasant hunters and trout fishermen in Minnesota, US, have formed an alliance to oppose plowing the prairie for corn fields, and to watch the amount of groundwater that ethanol plants extract from the aquifers which feed trout streams in the state, according to the St. Paul, Minnesota, newspaper Pioneer-Press. The hunters are worried that expanded agriculture will reduce the number of ducks and pheasants in the state. The large volume of ethanol production proposed in Minnesota is being conveyed to an interagency group to examine options for the future. If all the proposed plants are built, 8m gals/year of groundwater could be extracted from aquifers by 2011, according to John Wells, strategic planning director at the state's Environmental Quality board.

"It's not a crisis, but it's a lot different than saying we've got all the water we need and we'll never need to worry about it," Wells said. "We're not there anymore."

Get pricing information on fuel components at www.icis.com/pricing

THE BAGEL CONNECTION

The price of a bagel in New York has broken the psychological barrier of $1 for the first time because of shortages of wheat.





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