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by Lester R. Brown, Earth Policy Institute

 

Investment in fuel ethanol distilleries has soared since the late-2005 oil price hikes, but data collection has fallen behind. Because of inadequate data on the number of new plants under construction, the quantity of grain that will be needed for fuel ethanol distilleries has been vastly underestimated by farmers, feeders, food processors, ethanol investors, and grain-importing countries.

The U.S. Department of Agriculture (USDA) projects that distilleries will require only 60 million tons of corn from the 2008 harvest. But the Earth Policy Institute (EPI), estimates that distilleries will need 139 million tons—more than twice as much. If the EPI estimate is at all close to the mark, the emerging competition between cars and people for grain will likely drive world grain prices to levels never seen before. The key questions are: How high will grain prices rise? When will the crunch come? And what will be the worldwide effect of rising food prices?

One reason for the low USDA projection is that it was released in February 2006, well before the effect of surging oil prices on investment in fuel ethanol distilleries was fully apparent. Beyond this, USDA relies heavily on the Renewable Fuels Association (RFA), a trade group, for data on ethanol distilleries under construction, but the RFA data have lagged behind movement in the industry.
According to the EPI compilation, the 116 plants in production Dec. 31, 2006, were using 53 million tons of grain per year, while the 79 plants under construction—mostly larger facilities—will use 51 million tons of grain when they come online. Expansions of 11 existing plants will use another eight million tons of grain (one ton of corn=39 bushels=110 gallons of ethanol).

In addition, easily 200 ethanol plants were in the planning stage at the end of 2006. If these translate into construction starts between Jan. 1 and June 30, 2007, at the same rate that plants did during the final six months of 2006, then an additional three billion gallons of capacity requiring 27 million more tons of grain will likely come online by Sept. 1, 2008, the start of the 2008 harvest year.

This raises the corn needed for distilleries to 139 million tons, half the 2008 harvest projected by USDA. This would yield nearly 15 billion gallons of ethanol, satisfying 6 percent of U.S. auto fuel needs.

This unprecedented diversion of the world’s leading grain crop to the production of fuel will affect food prices everywhere. As the world corn price rises, so too do those of wheat and rice, both because of consumer substitution among grains and because the crops compete for land. Both corn and wheat futures were already trading at 10-year highs in late 2006.

Sources: Europe-based F.O. Licht, the publisher of World Ethanol and Biofuels Report; BBI International, which publishes Ethanol Producer Magazine; and the American Coalition for Ethanol (ACE), publisher of Ethanol Today.

(From Plan B 2.0: Rescuing a Planet under Stress and a Civilization in Trouble. Visit earthpolicy.org.)

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