Cars, not people, will claim most of the increase in world grain consumption this year. The US Department of Agriculture projects that world grain use will grow by 20 million tons in 2006. Of this, 14 million tons will be used to produce fuel for cars in the United States, leaving only 6 million tons to satisfy the worlds growing food needs.
In agricultural terms, the world appetite for automotive fuel is insatiable. The grain required to fill a 25-gallon SUV gas tank with ethanol will feed one person for a year. The grain it takes to fill the tank every two weeks over a year will feed 26 people.
Investors are jumping on the highly profitable biofuel-bandwagon so fast that hardly a day goes by without another ethanol distillery or biodiesel refinery being announced somewhere in the world. In some US Corn Belt states, ethanol distilleries are taking over the corn supply. In Iowa alone, a staggering 55 ethanol plants are operating or have been proposed. Iowa State University economist Bob Wisner observes that if all these plants are built, they would use virtually all the corn grown in Iowa. In South Dakota, a top-ten corn-growing state, ethanol distilleries are already claiming over half of the corn harvest.
Corn importers like Japan, Egypt, and Mexico are also worried that the likely reduction in US corn exports, which are 70 percent of the world total, will disrupt their livestock and poultry industries. In some importing countries in sub-Saharan Africa and in Mexico, corn is the staple food. In the United States corn supplies sweetener for soft drinks and is used in breakfast cereals, but most corn is consumed indirectly. The milk, eggs, cheese, chicken, ham, ground beef, ice cream, and yogurt in the typical refrigerator are all produced with corn. In effect, the refrigerator is filled with corn -- meaning the price of every item is affected by corn's price.
When Cars and Humans Both Need Grain
Since almost everything we eat can be converted into fuel for automobiles, including wheat, corn, rice, soybeans, and sugarcane, the line between the food and energy economies is disappearing. Historically, food processors and livestock producers that converted these farm commodities into products for supermarket shelves were the only buyers. Now there is another group, those buying for the ethanol distilleries and biodiesel refineries that supply service stations.
As the price of oil climbs, it becomes increasingly profitable to convert farm commodities into automotive fuel, either ethanol or biodiesel. In effect, the price of oil becomes the support price for food commodities. Whenever the food value of a commodity drops below its fuel value, the market will convert it into fuel.
Crop-based fuel production is now concentrated in Brazil, the United States, and Western Europe. Brazil, the worlds largest sugar producer and exporter, is now converting half of its sugar harvest into fuel ethanol. Despite only 10 percent of the worlds sugar harvest going into ethanol, the price of sugar has doubled. Cheap sugar may now be history.
In Europe the emphasis is on producing biodiesel. Last year the European Union (EU) produced 1.6 billion gallons of biofuels. Of this, 858 million gallons were biodiesel, produced from vegetable oil, mostly in Germany and France, and 718 million gallons were ethanol, most of it distilled from grain in France, Spain, and Germany. Margarine manufacturers, struggling to compete with subsidized biodiesel refineries, have asked the European Parliament for help.
In Asia, both China and India are building ethanol distilleries. In 2005, China converted some 2 million tons of grain -- mostly corn, but also some wheat and rice -- into ethanol. In India ethanol is produced largely from sugarcane. Thailand is concentrating on ethanol from cassava, while Malaysia and Indonesia are investing heavily in additional palm oil plantations and in new biodiesel refineries. Within the last year or so, Malaysia has approved 32 biodiesel refineries, but recently has suspended further licensing while it assesses the adequacy of palm oil supplies.
This worldwide investment in biofuel production threatens to draw grain away from the production of beef, pork, poultry, milk and eggs. And -- even worse -- the vast number of distilleries in operation, under construction or in the planning stages threatens to reduce grain available for direct human consumption. By the end of 2007 the emerging competition between the 800 million automobile owners who want to maintain their mobility and the worlds 2 billion poorest people who want simply to survive will be on center stage.
Given the insatiable appetite of cars for fuel, higher grain prices appear inevitable. Indeed, the prices of wheat and corn have recently hit historical highs; wheat prices at the end of 2006 were 20 percent above their levels at the end of 2005. For the 2 billion poorest people in the world, many of whom spend half or more of their income on food, these rising prices can quickly become life threatening. Food riots and political instability in lower-income countries that import grain, such as Indonesia, Nigeria, Mexico, and scores of other countries, could disrupt global economic progress.
The attempt to solve one problem -- growing western dependence on imported oil -- may create a far more serious problem. Fortunately there are alternatives to using food-based fuels: The equivalent of the 3 percent gain in automotive fuel supplies from ethanol could be achieved several times over and at a fraction of the cost, for example, by raising current auto fuel efficiency standards by 20 percent. Highly efficient gas-electric hybrid cars will also help, and investing in public transport would reduce overall dependence on cars.
The world desperately needs a strategy to deal with the emerging competition between food and fuel, and as the worlds leading grain producer and exporter -- as well as its largest producer of ethanol -- the United States is in the drivers seat.
Lester Brown is president of the Earth Policy Institute in Washington and author, most recently, of Plan B 2.0: Rescuing a Planet Under Stress and a Civilization in Trouble.