Where the bushel meets the barrel
 

by Ari LeVaux

With corn prices at record levels, agriculture ministers from the G20 nations gathered for the first time ever June 22 in Paris. The agriculture summit was called in hopes of avoiding a repeat of 2008, when then-record food prices caused millions to starve and riots to break out in 30 countries. Unfortunately, any chance of meaningful progress in Paris was derailed by the U.S. and Brazil, the world’s largest producers of corn-based ethanol, who forced the other ministers to dance around the elephant in the room. In the end, barely even lip service was paid to the notion that diverting agricultural resources into cars instead of people means less food to go around.

This denial came despite a recent report by the UN and World Bank, commissioned by the G20 nations, that fingered ethanol as a major factor in rising food prices. Despite this report and mountains of evidence in support of it, all the ministers would do, according to the Action Plan on Price Volatility and Agriculture they drafted, is “recognize the need to further analyze all factors that influence the relationship between biofuels production and food availability.”  

Instead of working to dismantle ethanol subsidies and government mandates for ethanol use in gasoline, as the UN report recommends, the ministers focused on increasing food production and clamping down on the phantom menace of commodities market manipulation.

USDA chief Tom Vilsack was at the summit, defending ethanol even as political support for the industry was dwindling back home. A week earlier, on June 16, the Senate voted to abolish a 45-cent per gallon tax credit for the ethanol industry. The vote was as lopsided (73-27) as it was bipartisan (38 Democrats and 33 Republicans voted for it). President Obama finally got the bipartisan unity he’s been seeking, but it was in opposition to his ethanol agenda.

Fiscal conservatives, environmentalists, oil executives, vegetarians and feedlot operators have all joined the orgy of strange bedfellows gathered in opposition to ethanol. Tom Coburn (R-Okla.) even teamed up with Dianne Feinstein (D-Calif.) to lead the effort to kill the $6 billion per year tax break.
Both the president, a former Illinois Senator, and Vilsack, a former Iowa governor, appear as cozy with ethanol as Anthony Weiner is with his camera phone. To his credit, the president has at least acknowledged that corn ethanol is problematic. As then-candidate Obama told me in a 2008 interview, “I have been a long-time supporter of home-grown biofuels, but I believe that corn ethanol should be a transitional fuel source as we move toward more advanced cellulosic (fiber-based) ethanol, which can be made from agricultural waste products, switchgrass, sustainably harvested forest biomass, and other renewable feedstock.”

Three years later, the president’s position hasn’t changed, and homegrown cellulosic biofuel remains a pillar of his plan to reduce our dependence on foreign oil. But corn ethanol is looking less like the means that Obama envisioned, and more like the end. Progress has been slow on the cellulosic ethanol front, and on June 21 the EPA announced sharp reductions, for the third year in a row, in the amount of cellulosic ethanol it will mandate be used next year, because the supply isn’t there. These reductions have shrunk the original 2011 target from 500 million gallons of cellulosic ethanol to 6.5 million.

The U.S. began propping up its ethanol industry with subsidies and mandates in 2005. Since then food commodity prices have doubled, while the percentage of U.S. corn used to make ethanol has increased from 10 percent to 40 percent.

In addition to competing with starving people for corn, the ethanol industry has another and even more powerful effect on food prices: it couples grain markets to the energy markets. Now that a bushel of corn equals a measurable percentage of a barrel of oil, the markets move together. Because grain markets typically move in unison, prices for non-fuel crops like wheat will follow corn as corn follows oil. In 2008, during the last food crisis, the prices for oil, corn and wheat all spiked together.

But the G20 agriculture ministers seemed interested in blaming that on anything but ethanol, including unnamed market manipulators who are letting people starve so they can profit. In a response to the Action Plan, Olivier De Schutter, UN Special Rapporteur on the Right to Food, shot a hole in this conspiracy theory. “Speculation typically results not from the manipulation of prices by one single financial actor taking excessive positions, but from the combined actions of a large number of actors adopting a herding behavior: it is this herding behavior that is at the source of price bubbles.”

Supporters of ethanol call it sustainable, a claim that doesn’t appear true in any sense of the word. The industry isn’t economically sustainable because it’s so dependent on governmental subsidies and mandates. It’s not environmentally sustainable either. So much oil is used to make the fertilizer to feed the corn, run the tractors and convert corn to ethanol that Cornell University professor David Pimentel has calculated the net gain of ethanol production to be negligible. Meanwhile, money that could have been used to support less controversial and more sustainable energy sources, like wind or solar, is instead used to assist the ethanol industry in hogging much of the world’s corn and other foods that can be used to make ethanol.

Today, catastrophic floods in the heartland are wreaking havoc on this year’s grain crops, which will further squeeze the grain harvest. Unrest fomenting in North Africa and the Middle East, the never-ending growth in demand for oil, a new wave of concerns over nuclear power, and any number of unanticipated events will likely fuel future spikes in oil prices. And grain prices will follow, like baby geese following mama. It’s time to decouple the bushel from the barrel, and quit feeding people food to cars.