EurActiv - Letters to the Editor

Sir,

We welcome international discussion on the role of biofuels in meeting the world’s energy needs. While the Gallagher Review is specific to the United Kingdom’s own renewable fuels policies, it is fair to note that the research done by U.S. experts and the U.S. Department of Agriculture has shown that biofuels-related feedstock demand has limited impact on global food supply and pricing. With gas prices soaring to more than $4 a gallon for American families, the addition of biofuels to our fuel supply is one of the only things keeping prices from increasing further.

The U.S. Secretaries of Agriculture and Energy say that biofuels-related feedstock demand plays only a small role in global food supply and pricing. Worldwide, the estimated increase in the price of soybeans and soybean oil would increase the global food commodity price index by 1-2 percent. In the U.S., according to the Department of Energy and USDA, food prices have increased by about 4.8 percent. Of that increase, ethanol and biodiesel consumption accounted for only 4 or 5 percent while other factors accounted for 95-96 percent of the increase.

Let’s keep this in perspective. Last year, the U.S. biodiesel industry used only 12% of U.S. soybean production and 4% of global soybean production to produce fuel. Of that, 81% of each soybean was protein that still entered the market for either human consumption or animal feed. Technological advances are also on the horizon to increase soybean yields from existing acreage. In addition, the industry is aggressively using or developing other sources for biodiesel – such as restaurant grease, animal fat, corn oil derived from ethanol production, camelina and algae.

The U.S. has set reasonable, attainable goals with its Renewable Fuels Standard. This is good federal policy with goals that our industry can comfortably meet, and which will benefit our nation’s economy, energy security and environment.

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Comments

  1. “Of that increase, ethanol and biodiesel consumption accounted FOR ONLY 4 or 5 percent while other factors accounted for 95-96 percent of the increase.”

    “FOR ONLY 4 or 5% of food price increase?

    What the hell makes you add FOR ONLY??

    We are aware that biofuels are not THE ONLY reason why food prices have rised, but what makes you say that it does not matter??

    Well, of course, you work for the Comission, you don´t care if the price of the cereals that you or your kids take every morning double, you don´t give a shit, for you have a salary that won´t make you even notice it.

    But I cannot understand these approaches from people working in institutions that promote political economy criteria like the ones the BCE strives for (inflation should not be more than 2%, etc).

    GIVE ME a BREAK, man.

  2. Plus, you are talking about the current situation, what are going to be the impacts on prices if biofuels really get to be really developed and used widespread??

    Amazing to see that someone who sais that “people that “do not understand the importance of numbers in the sciences (social and natural) should stay out of the business of writing public letters” reports uncritically these kind of sentences.

    Really, amazing.

  3. A cynical and opportunist analysis by someone obviously paid (what is your conscience’s price, mister Jobe?) to present the industrial side of things. No mention of the recently leaked World Bank report stating that agrofuels (and not biofuels, please) count for almost 75% of food prices rise!!!! Food markets are tight, especially cereals, and small increases in demand or supply can have huge impacts on prices.
    http://www.guardian.co.uk/environment/2008/jul/03/biofuels.renewableenergy

  4. It was my understanding that the food cost for cereal accounted for perhaps 10% or less of the actual end cost to the consumer. Our system allows mark ups for the manufacturer, distributor, and retailer. Of course you can buy non-brand name or in bulk from a warehouse store to try to save.

    Some of the costs are just higher fuel prices, here in the US the railways and trucks transporting everything to the local market run on diesel.

    So I think there is some balance going on here, where the biofuel yes increases the grain costs somewhat but it offsets what would have been even higher gas prices which also add in as above and also in the farm equipment used to harvest the crop. Extra fuel costs eventually get passed on to you and me.

  5. Yes, cynical. Only biofuel industry lobbyists deny that a significant factor the increase in prices of grains in the current food crisis are attributable biofuels production. Recent statements include:
    • The US Department of Agriculture’s chief economist in testimony before the Joint Economic Committee of Congress on May 1, attributed much of the increase in farm prices of maize and soybeans to biofuels production .
    • John Lipsky, First Deputy Managing Director of the International Monetary Fund estimated that the increased demand for biofuels accounted for 70 percent of the increase in maize prices and 40 percent of the increase in soybean prices, speaking in May 2008 .
    • Recent mathematical simulation estimates that about 60 percent of the increase in maize prices from 2006 to 2008 may have been due to the increase in maize used in ethanol .
    • Mark W. Rosegrant from IFPRI in Testimony before the U.S. Senate Committee on Homeland Security and Governmental Affairs in May 2008 stated:
    ‘In the short run, removal of ethanol blending mandates and subsidies and ethanol import tariffs, and in the United States—together with removal of policies in Europe promoting biofuels—would contribute to lower food prices.’
    He estimated that had a moratorium on biofuels been imposed from 2007 that the prices of key food crops would drop more significantly by 2010 : 20 percent for maize, 14 percent for cassava, 11 percent for sugar, and 8 percent for wheat

    The biofuels impact on food prices has to be seen in context of total world food stocks and declining reserves in 7 out of the last 8 years. Lester Brown of the Earth Policy Institute has documented that world grain consumption has exceeded production for 7 out of the last 8 years and World Grain stocks in days of available consumption are now at the lowest ever level. That’s why diverting food land and food crops to biofuel production is a very dangerous path.

    Glauber, May 1, 2008 – http://www.usda.gov/oce/newsroom/archives/testimony/2008/FoodPriceTestimony.pdf

    Lipsky, May 8, 2008 – http://www.imf.org/external/np/speeches/2008/050808.htm

    Collins (2008) http://www.foodbeforefuel.org/facts/studies/role-biofuels-and-other-factors-increasing-farm-and-food-prices

    See ‘World Grain Production, Consumption, and Balance, 1960-2007’ table at: http://www.earth-policy.org/Updates/2008/Update69_data.htm and the chart below (from same page) that shows that World Grain Stocks (in days of consumption) are at the lowest ever level)

  6. To Henry: You assume the author of this article works for the Commission, which is incorrect because he is American, works for a US national board and his article is (almost) entirely focused on the situation in the US (which I readily admit is narrow-minded as the food price crisis is a global problem and not just a US one).

    So, regardless of the reasons for criticising or supporting the author’s views:

    Read more carefully before you start to comment (and get carried away by your anger).

  7. Otherwise:

    I will not enter the dispute on figures: I am not enough of a specialist to do so, I only know that the most largely admitted opinion on the topic is that the *global* rise in the use of biofuels accounts for a large proportion of the rise in *global* food prices but I am not competent enough to say if this is correct or not.

    But I agree with Henry in saying that any analysis of the phenomenon should not be narrowly focused on the present (as if it were a mere matter of economic conjuncture) but take into account the anticipation of longer-term developments in order to bear real relevance.

    A situation may look trifling in current conditions but some future developments may give real cause for strong concern, especially if they are not foreseen and the next generation is taken unawares to have to deal with them…

    As the saying in French goes, “gouverner c’est prévoir” – management and governance are about anticipation.

  8. I am amazed at the lack of reasoned discussion surrounding ethanol and food prices. Even the so-called economic analyses are biased and fraudulent.

    For example while all the analyses I have read on the affect on food prices by ethanol’s demand for corn examine the possible impact on commodity prices from the demand for corn to make ethanol NOT ONE CONSIDERS THE FACT THAT ETHANOL BY SUPPLYING SOME OF OUR FUEL NEEDS IS BRINGING THE COST OF GAS AND THEREFOR OIL DOWN. Since fuel and chemicals is about 305 of farm costs ethanol is therefor keeping commodity cost LOWER by reducing oil/gas costs.

    Due to something called the Elasticity of Demand for gasoliine if you supply additional gas or a substitute you will bring down the price of gas. THis phenomenon is someting the OPEC oil ministers are acutely aware of. That’s why they adjust there production levels of oil so minutely. They don’t want the price of oil and gas to go down, so they only adjust production volume by very small increments.

    Francisco Blanch, Commodities Strategist for Merrill Lynch has said that ethanol is keeping the price of gas down about 15%. Now, given that reality, fact based estimates of ethanol’s affect on food prices are somewhere between 1% to 3% when you consider that petrolueum costs represent about 30% of the cost of farm commodities (and even more when those commodities are shipped overseas to foreign ports!) then 15% of 30% is 4.5% – so the reduction of food commodities prices due to ethanol’s reduction of gas costs is about as much or more than any push on commodities prices through increased demand for field corn for Ethanol.

    The reality is, that this summer when gas hit $4.17 a gallon without ethanol it would have been $4.77 a gallon! Except WAIT! IT NEVER WOULD HAVE HIT $4.77 BECAUSE AROUND ABOUT $4.40 EVERYBODY WOULD HAVE SO CURTAILED THEIR SPENDING ON THINGS OTHER THAN FOOD, GAS AND HOUSING WE WOULD HAVE GRINDED INTO A DEPRESSION WITH MILLIONS OF PEOPLE OUT OF WORK.

    NOW, THAT would have helped bring down the price of gas and oil but that’s a helluva way to do it. The Government would have been trying to figure out how to feed maybe tens of millions of people who had NO WORK – NO JOBS. I think it’s very much preferable to use ethanol to keep the price of gas from driving us into a depression especially since it’s affect on food prices is NIL – because it brings down the price food by holdinig down the price of gas (and diesel) as much or more than it pushes up the cost of food commodities through competition for field corn.

    WISE UP PEOPLE. ETHANOL SAVED YOUR REAR-ENDS this year. And hopefully it will be able to continue to do so until we can get enough plug-in hybrids on the road to make a significant dent in our use of gas (in about 25 years).

    BTW, Ford is coming out in 2010 with an ethanol enabled direct injection engine that achieves 25% to 30% better gas mileage and the engine only costs about $600 – $1,000 more to build than a regular engine. This engine only uses 5% ethanol and 95% gasoline but through turbo-charging they are able to downsize the engine to about half the size it would be if it ran only on gas. (ethanol has a much higher octane rating than gasoline so you can boost compression chamber pressure much more than with strait gas. The result is much more power per cu in. and a smaller engine.) And for a lot less than the current hybrids cost! This engine will enable us to reduce gasoline demand a significant amount as more people will be able to afford it. The engine was designed by three professors at MIT. Look it up on the web. Learning is a wonderful thing.

  9. In my humble opinion biofuels play a very important role today. Maybe it doesn`t save food prices to rise, but it gives hope for the future. I am sure that this part of industry will be developing and the result will be more optimistic in the future. Anyway as far as I can see it is not dangerous for ecology and our nature. And this is a great plus.

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