Friday, February 11, 2011

Food vs. Fuel, Redux

Today's Washington Post includes a noteworthy opinion piece from Tim Searchinger of Princeton University concerning the impact of expanding biofuel production on global food prices and availability. Food vs. fuel competition made headlines in 2007 and 2008 but then subsided during the recession and financial crisis. This year, with global crop yields down and food demand up, and with food-derived biofuel production at record levels, the issue has returned. The relationship between biofuel output and food prices is certainly complex, but it is significant, particularly for those who spend much of their incomes on unprocessed grains and vegetable oils. And both population and biofuels demand will continue to increase from today's levels.

You might recall Mr. Searchinger's name in conjunction with a high-profile scientific paper in 2008 casting doubt on the value of crop-based biofuels in reducing greenhouse gas emissions. "Global land use impact" entered the lexicon of environmental consequences as a result of his and his collaborators' work, and it had a significant influence on the EPA's updated Renewable Fuel Standard (RFS) regulation, even if the agency's final version of the rule softened its application in constraining the least efficient corn ethanol facilities. So you might say that Mr. Searchinger is no great friend of first-generation biofuels in general. However, the issue that he's writing about today, while no less controversial in energy and policy circles, is much more straightforward to understand than the carbon debt of newly cultivated cropland.

As he notes in his op-ed, numerous studies have demonstrated a link between biofuel production and food prices in 2007-8, even in the US, where the basic inputs subject to this kind of price competition constitute a small portion of the retail prices of the processed foods we eat. It affects US food price inflation, but mainly indirectly through routes such as raising the price of livestock feed. Among others, the Congressional Budget Office looked at this issue in 2009. Most of the studies I saw also showed a significant effect on food prices from rising energy prices, another phenomenon that has reappeared in the last year. However one interprets all this, it is inescapable that a bushel of corn turned into ethanol is not available for export to countries that are experiencing a combination of rising demand and disappointing harvests.

As long as US harvests were increasing at a rate that kept pace with the growth of ethanol output, thanks to increased cultivation and better yields, that wasn't a zero sum game. Until recently, the corn that went into making ethanol was corn that might not otherwise have been grown. But in a year like this one, when annual ethanol consumption is set to rise by another billion gallons while the corn harvest is 5% smaller than the previous year's, something has to give. In fact, the US Department of Agriculture expects that ethanol plants will take 40% of this season's crop, compared to just 23% in the 2007-8 "market year." That exerts a lot more pressure on corn prices, which are pushing $7 per bushel for the first time since 2008.

If anything, the conclusion of Mr. Searchinger's op-ed downplayed the risks ahead. With output from the nascent cellulosic ethanol industry still minuscule, the EPA will be under tremendous pressure to allow corn ethanol to continue to expand beyond its current 15 billion gallon per year limit under the RFS. That's one reason the industry was pushing so hard to increase the maximum allowable percentage of ethanol in gasoline from 10% to 15%; it needs that headroom to continue expanding output beyond last year's 13 billion gallons. At 20 billion gallons per year--a quantity that I heard one USDA expert suggest several years ago was achievable--ethanol would require the equivalent of 55% of 2009-10's record US corn crop. It's hard to envision that happening without concerns about food vs. fuel rising to a much higher pitch.

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