Food Vs Fuel

A long-standing myth surrounding the biofuels industry has centered on the “Food vs Fuel” debate, which claims that increased production of corn-based biofuels such as ethanol have led to higher food prices.

Such claims have been backed by the perception that the implementation of the Renewable Fuel Standard (RFS) and the Energy and Independent Security Act (EISA) in 2005 and 2007 led to a higher volume of corn produced for ethanol instead of for food and livestock feed purposes.

Among the biggest proponents of this theory includes global humanitarian and development organization, Oxfam International, which in 2008 claimed farmers were allocating more of their crop production for fuel than food in their drive for higher profits.

Furthermore, biofuel opponents believe the demand and production of ethanol has led to higher corn prices, which has resulted in higher food prices. Proponents of this theory often cite a 2008 World Bank report, which alleged biofuels had forced global food prices up by 75% in that year.

Most of these theories, however, aren’t supported by raw data from the U.S. Department of Agriculture (USDA) and have been refuted by newer studies.

In fact, data compiled by the USDA for 2015/16 marketing year estimates corn use for ethanol in the aforementioned marketing year to total 5.22 billion bushels while total corn supply is expected to reach 15.38 billion bushels. But since 16 lbs of a 56 lbs bushel of corn is returned as dried distillers grains (DDGs) and 0.6 lbs is returned as corn oil, the actual amount used for ethanol is some 69 percent of a bushel.

This in turn means the corn that will be used for ethanol is actually 3.6 billion bushels, which is only 23 percent of the total supply of corn. This  clearly refute the idea that corn production for ethanol has superseded production for food and livestock feed.

Just as important to note is the fact that one ton of DDGs could effectively replace 1.22 tons of feed consisting of corn and soybean meal. As such, using DDGs enables the livestock and poultry industry to use less corn and soybean meal.

In a 2015 report by ABF Economics, it said Minnesota converted 393 million bushels of corn in 2014 into 1.1 billion gallons of ethanol, 3.3 million tons of DDGs and 184 million lbs of corn oil.  More importantly, it said the 3.3 million tons of DDGs were sufficient to meet the annual feed requirements of nearly 2.5 million beef and dairy cattle or the entire inventory of cattle and calves in Minnesota. 

There is also evidence that the linkage between ethanol and food prices have been overstated and even erroneous.

A report in June 2013 by ABF Economics, an agriculture and biofuels economics consultancy, said an examination of food prices measured by the U.S. Consumer Price Index “indicates that retail level food prices have increased at a slower rate since the RFS took effect than during the comparable five years before the RFS.”

In addition, it said demand for ethanol wasn’t the biggest contributing factor for rising corn prices and pointed instead to the increase in gasoline prices and a higher global demand for food and agricultural commodities.

In particular, high gasoline prices impact the cost of farming while fertilizer and transportation costs strongly correlated to oil prices. These in turn, affect food prices.

Correlation between food and oil prices.001

The chart above, based on data from the United Nation’s Food and Agriculture Organization (FAO) and U.S. Energy Information Administration indicates a close relationship between food and crude oil prices.

Furthermore, the image below, which is based on the USDA’s Economic Research Service, illustrates where exactly a dollar for food goes to.

Farm Dollar Croped

Even the World Bank has refuted claims it made in its aforementioned report in 2008. In a 2010 report, it said increased speculation in the commodities market by investment funds in 2008 was the real cause of higher food prices that year.

It specifically pointed out to data in 2008 that showed high corn prices even when ethanol use was on a downward trend. This, it said, was evidence that speculation in the commodities market, rather than ethanol production or demand, was the main contributor to higher food prices.