The Debate: Food for Fuel

The Debate: Food for Fuel

By Tim Duey

Perhaps more than anything else, agriculture is responsible for the security that Nebraskans enjoy today. According to Nebraska Department of Agriculture statistics, Nebraska exported $4.799 billion in agricultural commodities during 2009, and by their estimate every dollar in agricultural exports generates $1.36 in economic activities such as transportation, finance, warehousing and production, thus turning that $4.8 billion into $6.5 billion.

In addition to exporting its agricultural products to the world, Nebraska producers also sell their corn to in-state ethanol producers, which produce 1.7 billion gallons of ethanol a year or 13 percent of the total U.S. supply, according to statistics provided by the Nebraska Energy Office. In years like 2010 and 2011 when the price of corn on the world market is much higher than normal, this has sparked controversy, according to University of Nebraska-Lincoln agricultural economist Richard Perrin.

"We have some people who think it's a terrible idea, and there are of course some people who think it's a great idea," Perrin said. "The big issue with respect to biofuels, at least biofuels as we now know them, is whether or not to use food crops for fuel." Many people are worried that by using corn for fuel instead of for food that Nebraskans are helping to drive up its price. According to Perrin, fears that rising grain prices could make food unaffordable to many Americans are greatly exaggerated.

"In the U.S., there's no threat," Perrin said. "If we double the price of grains, that's equivalent to an increase of about three percent in the cost of our food purchases if we were to just pass that cost on ... and a three percent increase in the cost of our food would not be equivalent to a fraction of a percent of consumer income."

But while a three percent increase in the cost of food might not affect middle class Americans very much, Perrin also said that it might have more of an effect on Americans who spend a greater portion of their income on food. And while a three percent increase in the cost of grain might affect America's poor more substantially than it would most Americans, Perrin said the most profound effects could be felt abroad in the countries where a relatively high percentage of people spend more of their income on food.

"If you are a poor person in India or a poor person in Africa spending 60 to 70 percent of your income on food and most of that food is grain, it just prices you out of the market; you're going to be hungry," Perrin said.

Market Fluctuations
Despite fluctuations in worldwide grain prices over the past decade, Perrin believes that increases in the scale of U.S. biofuels production are not the primary cause. He said that although some experts did blame increased biofuels production after grain prices rose nearly 40 percent in 2007 and still higher in 2008, they eventually came back down and Perrin says that most experts now believe that biofuels played a role, but not necessarily the most important role.

According to Perrin, it is more likely that increased prices have been caused by droughts and other natural disasters in the world's grain-producing regions that have created short crops. These shortages have driven prices up, Perrin said. And though grain prices have been on the rise again and have returned back to 2008 levels, Perrin said that they will probably go back down.

"The spike has been the result of shortfalls in production; those shortfalls, most of us expect are temporary," Perrin said. "I expect that there will be a rebound in grain production in the next couple of years around the world that will bring prices back down to where they were a year ago. That's my expectation, and I think that's the general expectation among economists," he added.

What to Expect Going Forward
In Perrin's estimation, there shouldn't be much of a problem feeding the world in the near future. While there are many factors such as transportation infrastructure, war and politics that contribute to world hunger, producing enough food in the first place should not be one of them, at least in the short term. Perrin said the world's agricultural industry should have no problem keeping up with increased biofuel demand and still producing enough food for now. But looking further ahead he sees a big challenge.

"In the long run, the increase in demand for food products is going to be relentless, and it is going to tax the capacity of the agricultural industry to produce enough (food) that will keep prices in line with where they have been in recent decades," Perrin said. "It's going to be difficult to produce 70 percent more agricultural output, which is what the FAO (the Food Agricultural Organization of the United Nations) and others are anticipating that we would need to meet the increase in demand due to increases in population and incomes. If we don't meet the 70 percent extra agricultural output just for food purposes, then the prices are going to go up. And that's going to jeopardize food security for a lot of areas of the world."

Perrin estimates that advances in agricultural technology should increase world capacity for grain production enough to cover the increase in world demand. That's not to say that there won't be tough decisions ahead.

The amount of biofuel produced in Nebraska and in the rest of the country could have a major impact on how well the world's agricultural industry is able to provide food for people who need it sometime in the distant future. Perrin said that if oil prices rise much higher, demand for ethanol might be high enough to put a serious strain on the world's grain supply. If that day comes, Perrin said there will be enough competition between ethanol and food producers to significantly contribute to the world's hunger problems through higher grain prices than we are seeing now. He said new fuel alternatives will have to be found by the time the world's population is estimated to peak around the year 2050.

"If energy prices are high, corn is an attractive feed stock for the energy industry," Perrin said. "In the future, I think corn ethanol is going to be too attractive even without subsidies. ... that's why in the long run I think it really is a threat to food supplies even though I don't think it's a threat right now."


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