![Analysis: In Food Vs Fuel Debate, U.S. Resolute On Ethanol Analysis: In Food Vs Fuel Debate, U.S. Resolute On Ethanol](http://www.geni.org/energy/assets/gif/title_library.gif)
Analysis: In Food Vs Fuel Debate, U.S. Resolute On Ethanol
Mar 03, 2011 - Timothy Gardner and Charles Abbott -
planetark.org
As world food prices reach new highs, a handful
of U.S. politicians and hard-hit corporations are
readying a fresh effort to forestall the use of more
U.S. corn and soybeans as motor fuel.
They are likely doing so in vain, say experts.
Unlike in 2008, when a wave of global panic over
grain supplies provoked a fierce "food vs fuel" debate,
there's so far only muted outcry over biofuels, even
after corn surged last week to within 10 percent
of its 2008 peak following a forecast showing even
higher use in the ethanol sector.
While that may yet change as higher prices fuel
inflation and trigger worries over supply security,
officials and experts say ethanol is too ingrained
in public policy and the economy of the U.S. heartland
to be easily dislodged.
"What would it take for this public policy
to be altered- The answer -- a lot," said Gary
Blumenthal of World Perspectives, a private consultant.
"The best voices for demanding change are U.S.
consumers themselves, but that will require a food
price spike larger than the 2 to 3 percent currently
forecast by USDA. And since the Fed focuses on core
inflation and ignores food and energy, it gets ignored
there as well."
U.S. ethanol production this year will consume 15
percent of the world's corn supply, up from 10 percent
in 2008. That share will continue to rise as the
industry faces a mandate to boost minimum production
an additional 20 percent by 2015. And exports are
booming thanks to costly sugar-based rivals.
Ethanol has become a lightning rod for criticism
from opponents including foodmakers, livestock feeders,
environmentalists and budget hawks.
The largest U.S. meatpacker, Tyson Foods Inc, which
also raises chickens, and No. 1 pork processor Smithfield
Foods Inc, which raises hogs, say ethanol drives
up feed costs sharply and hurts consumers.
"It makes a lot more sense for us to burn our
trash than burn our feed," Tyson CEO Donnie
Smith said last month.
As yet, foes have not found an electric argument
to compel broad-scale change.
On the global stage, the hand-wringing over soaring
prices has focused on markets, not biofuel.
French President Nicolas Sarkozy, who has made food
security a centerpiece of his one-year term leading
the Group of 20 leading economies, has called for
rules to curb commodity volatility, not to roll back
widespread efforts to convert more crops to fuel.
That finding has the support of a World Bank study
released last July, that said: "The effect of
biofuels on food prices has not been as large as
originally thought, but that the use of commodities
by financial investors ... may have been partly responsible
for the 2007-08 spike."
But with spending cuts the top issue for lawmakers
this year, ethanol subsidies may be swept into the
deficit debate.
"Before this (debate) is over ... I suspect
a lot of things will be looked at," said House
Agriculture Committee Chairman Frank Lucas of Oklahoma,
where major industries are ranching and oil and gas
-- two sectors skeptical of ethanol.
NO GOING BACK
Backtracking on existing ethanol mandates would
be almost unthinkable at this point. At some 900,000
barrels per day (bpd), ethanol now makes up about
10 percent of the gasoline pool in the world's largest
oil consumer.
"The fact is the industry has pretty much been
built," Joe Glauber said this week. "This
isn't a question of just saying 'cut it off.' It's
much more complicated than that."
And food prices, at least at home, have yet to pinch.
Prices at U.S. grocery stores and restaurants shot
up 5.5 percent in 2008 without inspiring an ethanol
overhaul. They were a negligible 1.8 percent in 2009
and a tiny 0.8 percent last year, so 2.5 percent
may seem large this year. The overall inflation rate
is forecast for 1.9 percent.
Nor is there great political will to make it an
issue.
Republicans, including the Tea Party caucus, pushing
for deep budget cuts, could single out the 45-cents-a-gallon
fuel tax credit that encourages biofuel production,
and helps ensure the sector remains profitable.
But at $6 billion a year, they are a drop in the
U.S. budget bucket, and overturning them would likely
face stiff opposition from President Barack Obama
-- whose determination to boost domestic resources
is as resolute as his predecessors.
"Biofuels continue to be an important component
of our clean energy strategy," a White House
spokesman said when asked about ethanol, tight corn
supplies and rising food prices.
"These home-grown, renewable fuels reduce our
dependence on oil and create jobs and rural economic
development."
Besides the tax credits, a 2007 law guarantees renewable
fuels a rising share of the market. For corn ethanol,
the mandate is 12.6 billion gallons this year and
15 billion gallons annually from 2015.
Production is set to reach 13.5 billion gallons
this year -- up 46 percent from 9.235 billion gallons
in 2008. Makers will exceed the mandate this year
due to exports and profit-making moments when ethanol
is cheaper than gasoline.
TEXAS UNSUCCESSFULLY SOUGHT MANDATE CUT
When grain prices skyrocketed in 2008, Texas, home
of the U.S. oil industry, asked the Bush administration
to halve the ethanol mandate for that year. The request
was rejected.
Last year, Congress battled over ethanol subsidies
before approving a one-year extension. Senator Dianne
Feinstein of California is working on legislation
to trim ethanol subsidies. "Federal subsidies
and tariffs for ethanol are wrong for our fiscal
policy and wrong for the environment and rising commodity
prices are another indicator of that," she said.
"It's unfathomable that the corn ethanol industry
can continue to assert that using 40 percent of the
corn crop has no impact on food stocks or commodity
prices," said the Environmental Working Group,
an ethanol critic.
Ethanol defenders say that critique ignores the
benefit of distillers dried grains, an ethanol co-product
that can substitute for corn in livestock rations.
Forty million tons of grains are available at lower
cost than corn, they say.
Comparatively small numbers of lawmakers oppose
corn ethanol, while farm-state lawmakers are a strong
bloc of support. Last year, the argument centered
on possible cuts in the tax credits rather than elimination
of them.
The major U.S. makers are privately owned POET,
Archer Daniels Midland Co and Valero Energy Corp.
Advanced biofuels, such as ethanol from cellulose
found in grass and woody plants, are the darling
of corn ethanol critics. But the next-generation
fuels amount to only a trickle of output and will
need years to grow.
"Without ethanol, you have to have 10 percent
more gas derived from oil. If you look at the impact
on consumers, it would be huge," said Tom Buis
of the ethanol trade group Growth Energy.
(Editing by Russell Blinch)
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