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
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
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.)