Rising Food Prices, Ethanol and Unrest

The civil unrest in the Middle East is driven by many factors but one of them is rising food prices which disproportionately hit the poor.  Unfortunately some of our environmental strategies are helping to driving food price inflation.  Here in the US this conflict is seem most prominently in ethanol and the impact that renewable energy standards demands the increased use of ethanol are having on the price of corn as it ripples through the food supply chain.

I stumbled upon an interactive map which shows this food versus fuel conflict as it plays out not just for corn but other points on conflict around the world.  The map was designed by ActionAid, an anti-poverty group and the Environmental Working Group (EWG) showing the countries at greatest risk of a food crisis due to food price rises. The map shows 52 high-risk countries where food imports of more than 83 billion tons of food per year are required. The result is more than 750 million individuals are malnourished in those places. Corn is a main staple, alongside soybeans and wheat exported by the United States. More than half of these countries are being adversely affected by food price hikes especially the 37 that rely heavily on imports of corn. The average income in these places is $2 a day and people spend about 55 per cent of their income on food.  Little wonder we are seeing more civil unrest in these places.

The US “sends seven times as much corn to ethanol plants as we keep in our own stockpiles, the diversion of just a few more bushels sends shockwaves through commodity markets and food price indices.” —Sheila Karpf, Environmental Working Group.

The Los Angeles Times reported recently that ethanol plants shut down during the recession are reopening as demand grows for domestic ethanol production driven by both a Federal government mandate that use of ethanol as a blend with gasoline be increased to 36 billion gallons per year by 2022 and an ethanol tax credit of 45 cents per gallon of blended fuel.  Corn-based ethanol is about half of that market.  Ethanol production hit 13.2 billion gallons in 2010, a record, according to the Renewable Fuels Association in Washington.

About 75% of tax credits for renewable energy goes to ethanol according to the LA Times story. With the mandate to use ethanol and the tax credits for compliance more than 40 percent of US corn production has been diverted from food and feed stock to ethanol production.

Our desire to “do good” by the environment is being hijacked by the desire of the corn producers to “do well” and the Federal Government’s mandate and subsidy of the policy.

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