Environmental Law

Food-Fuel Battle Rages on with Dueling Estimates, Little Consensus

By Dennis Pfaff and Kevin Livingston, Editors

The continuing conflict over ethanol, particularly the kind that comes from commodities such as corn, has been stirred up again with both the federal government and the food industry trading much differing assessments of the economic impact of the fuel additive.

Federal agriculture and energy officials conceded there's been some contribution from ethanol and biodiesel consumption to spiking food prices but generally downplayed the impact in a report that was crafted as a response to questions from an influential senator. They also argued ethanol's presence has helped moderate (if that's the right word) gasoline prices, and cut greenhouse gas emissions.

Meanwhile, the food industry, which has just launched a big anti-corn ethanol campaign, issued its own study claiming that ethanol was the "major driver" for food inflation that could hit 9 percent in the coming years.

This kind of bickering is not new. As Climate Law Update reported previously biofuels have come in for their share of criticism and the industry has generally struck back with its own set of facts and figures touting the environmental and consumer benefits of ethanol and discounting its impact on food prices.

Even foreign supplies could be controversial. Some lawmakers recently announced they want to drop the tariffs on imported ethanol but recently serious questions have been raised about Brazil's production methods, according to the Wall Street Journal's Environmental Capital blog.

But the latest issuance from the U.S. Department of Agriculture and the U.S. Department of Energy appears to be one of the strongest endorsements yet for ethanol and for retaining federal renewable fuel standards that will require 9 billion gallons of the product to be blended into the fuel supply this year. In a letter to U.S. Sen. Jeff Bingaman, the New Mexico Democrat who chairs the Senate Energy and Natural Resources Committee, and who last month asked administration officials a number of questions on the subject, Energy Secretary Samuel Bodman and Agriculture Secretary Edward T. Schafer (pictured) strongly defended the ethanol program as good for the economy and the environment:

"It is clear ... that biofuels are already moderating gasoline prices. That impact is likely to grow substantially as more biofuels come to market. Our preliminary analysis further suggests that current biofuels-related feedstock demand plays only a small role in global food supply and pricing. Moreover, the impact of biofuels on U.S. consumers is even smaller since the farm price of commodities accounts for less than twenty percent of U.S. consumers' food costs."

In their response to Bingaman and an accompanying fact sheet, the cabinet secretaries estimated that last year ethanol and biodiesel consumption accounted for no more than 4 percent of the overall rise in retail food prices, and up to 5 percent this year. They also noted increased demand has benefited corn and soybean producers. But the document said prices also rose sharply because of pressures such as population growth and the weak dollar

They asserted gasoline prices would be between 20 cents and 35 cents a gallon higher than without ethanol, a $49 billion savings over the entire economy. Production costs, after accounting for a 51-cent per-gallon tax credit, are lower than the cost of conventional gasoline, the response said. The numbers are due to change somewhat, because the recent farm bill passed by Congress lowers that subsidy to 45 cents a gallon. 

Environmentally, corn ethanol reduces greenhouse gas emission 19 percent compared to gasoline, according to the government findings. The fact sheet said when the next generation of cellulosic biofuels come along, which are not made from food crops, the emissions reductions would exceed 86 percent.

The bottom line, they wrote, an effort to repeal the ethanol mandate "would hinder progress toward reducing our dependence on imported oil and reducing greenhouse gas emissions."

But the food industry report called the "rapid expansion in the use of corn to produce ethanol ... currently the most significant factor driving corn and other agricultural commodity prices to record levels." The report, prepared for Food before Fuel, a campaign spearheaded by the Grocery Manufacturers Association and a mix of other food industry, political and environmental groups, estimated that food inflation would rise to an average of 9 percent between now and 2012.

The report, however, did not specify exactly how much would be due to ethanol, even though it projected that almost twice as much corn would be going into making fuel as just a few years ago. Bill Lapp, the head of the Omaha consulting firm Advanced Economic Solutions, told Climate Law Update the reason for the omission was simple: He doesn't really know the answer but he thinks the percentage is probably large.

During a time of strong worldwide demand for corn, he said, 50 percent of the increase in global usage of the grain is the result of the United States demand for ethanol. He said some estimates have put the proportion of price increases due to ethanol as high as 65 percent, a figure he said "sounds a bit excessive." However, he said he "lean toward" that high end of the range. Said Lapp:

"Today, it seems to be superseding the impact of global economic growth, any type of weather problem, a weakening dollar. It seems to be much more pervasive in terms of its impact than those other factors."

A spokesman for the Renewable Fuels Association, the leading ethanol industry group, could not be reached for a comment. However, the organization last week issued its own statement blasting the new food industry campaign. In it, the group's president Bob Dinneen said:

“The repeated claim that ethanol is responsible for food price increases continues to mislead and misdirect because the real factors driving up world food prices are skyrocketing oil prices, rising demand in China and elsewhere, droughts and adverse weather, wild commodity speculation, and the decline in the value of the dollar.”

(Photo credit: U.S. Department of Agriculture)    

Full post as published by Climate Law Update on June 13, 2008 (boomark / email).