Mexico is in the grip of the worst tortilla crisis in its modern history. Dramatically rising international corn prices, spurred by demand for the grain-based fuel ethanol, have led to expensive tortillas. That, in turn, has led to lower sales for vendors such as Rosales and angry protests by consumers.
The uproar is exposing this country's outsize dependence on tortillas in its diet -- especially among the poor -- and testing the acumen of the new president, Felipe Calderón. It is also raising questions about the powerful businesses that dominate the Mexican corn market and are suspected by some lawmakers and regulators of unfair speculation and monopoly practices.Tortilla prices have tripled or quadrupled in some parts of Mexico since last summer.
Biomass energy puts more affluent car drivers in competition with poor food buyers for the same fields of land. Biomass energy also increases the amount of competition between farmers and wildlife for the same fields of land. The poor people and the wildlife lose in such competitions.
Higher corn prices will eventually translate into higher prices for other basic foods. Why? Farmers will plant less of other crops and more of corn. Plus, people will shift away from eating corn and toward eating other foods.
Corn prices, 75 percent of the cost of ethanol production, have doubled in the past six months, to more than $4 a bushel. At the same time, the price of ethanol has followed the price of gasoline downward.
Absent a rescue from Capitol Hill, the glut is going to get worse. AgResource's Basse estimates the blending demand for ethanol at 10 billion gallons, 7 percent of the 150 billion gallons of blended fuel burned each year. Current nationwide ethanol capacity is 5.4 billion gallons. But 6.1 billion gallons' worth of capacity is now under construction, according to the Renewable Fuels Association. That would push supply right past demand and destroy ethanol prices. Unless mandates are tightened. At the moment the motor fuel industry is meeting environmental minimums and exceeding the energy independence ones.
Under present law the independence minimum comes to 4.7 billion gallons of ethanol this year and 7.5 billion in 2012. But now the Bush Administration is considering boosting this mandate to 60 billion gallons by 2030.
Such a huge increase in ethanol production will raise food costs even if we shift to using switchgrass with cellulosic technology to make ethanol. Lots of land will get shifted into switchgrass production and away from food crop production in that case.
NEW YORK - The economic viability of ethanol as an alternative to petrol has been thrown into question as the oil price fell below US$50 a barrel yesterday for the first time in nearly two years, while the price of corn - the main ingredient in the new fuel - surged to a new 10-year high.
After a decade of trading between US$2 and US$3 per bushel, corn was trading yesterday at US$4.09 a bushel.
Some ethanol plants extract as much as 2.8 gallons of ethanol per bushel. So a doubling of corn prices adds at least 71 cents to the cost of a gallon of ethanol. The only way ethanol can get produced is with a large taypayer-funded subsidy. You subsidize the production of ethanol and as a result you pay more for ham, chicken, steak, corn muffins, and tortillas. Plus, the demand for corn causes farmers to shift away from wheat, soy, and other crops to grow more corn. So you pay more for the other grains as well.
Corn prices have gone from $2 to $4 per bushel. Ranchers say that's costing them about $200 dollars a head for calves headed to the feedlots. Even worse, cattleraisers are bracing for even higher prices.
That $200 is just at the stage of calves. As the calves continue to get fed the costs from higher corn prices continue to add up even higher.
Tyson has warned rising corn prices could mean consumers will have to pay more for chicken, beef and pork this year. The price of corn, which is used as animal feed, has been skyrocketing as demand has increased for ethanol, an alternative source of fuel to gasoline.
"We estimate that ethanol demand has already increased the price of chicken by six cents per pound wholesale," said William P. Roenigk, senior vice president and chief economist for NCC. "If government continues to push corn out of livestock and poultry feed and into the energy supply, the cost of producing food will only increase."
The retail price increase is higher, but how much higher? 10 cents per lb total perhaps?
Ethanol gets a 51 cents per gallon subsidy in the United States. If that subsidy remains in place then the yearly cost of that subsidy could rise to over $17 billion per year by 2017.
Production of ethanol is currently subsidized by the federal government through a tax credit of 51 cents per gallon of ethanol added by fuel blenders. In his State of the Union message, President Bush called for an increase in the production of renewable and alternative fuels from 7.5 billion gallons to 35 billion gallons by 2017. He also proposed $2 billion in loans for the development of fuel from sources other than corn, such as switchgrass or other "cellulosic" sources.
Some of the post commenters argue against government spending on energy research in photovoltaics, batteries, and other areas. Well, we are spending billions per year on ethanol production subsidies. I'd rather spend on research that will lower costs than on use of technologies that are expensive. Politicians are going to spend big money on energy policy. I'd rather they spend in ways that will lower costs and reduce environmental impacts.
Greg Boerboom raises 37,000 pigs a year on his farm in Marshall, Minn. Those hogs eat a lot of corn—10 bushels each from weaning to sale. In past years he has bought feed for about $2 a bushel. But since late summer, average corn prices have leapt to nearly $4 a bushel. To reduce feed costs, he sells his pigs before they reach the normal 275 pounds, and keeps them warmer so they don't devour more food fighting off the cold. Still, Boerboom hopes just to break even. "It's been a pretty tight squeeze on pork producers," he says. "The next eight months will be really tough."
That is only $20 extra per pig or less than 10 cents per lb.
Recently Lester Brown and colleagues at the Earth Policy Institute counted up all the ethanol plants in operation, under construction, getting expanded, and in planning. They discovered a much larger scaling up of ethanol production than has previously been measured by other organizations.
According to the EPI compilation, the 116 plants in production on December 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 8 million tons of grain (1 ton of corn = 39.4 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 January 1 and June 30, 2007, at the same rate that plants did during the final six months of 2006, then an additional 3 billion gallons of capacity requiring 27 million more tons of grain will likely come online by September 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. (And this estimate does not include any plants started after June 30, 2007, that would be finished in time to draw on the 2008 harvest.)
I think the rising cost of corn combined with the declining cost of oil may prevent many of those planning stage ethanol plants from ever getting built. A removal of the subsidy for ethanol production would reduce food prices and save money. We'd be better off spending the tax dollars on developing new energy technologies that have less environmental impact than biomass.
|Share |||Randall Parker, 2007 January 27 11:48 PM Energy Biomass|