April 14, 2008
Biomass Energy Versus Food Crops

Some (though not all) political leaders in Europe acknowledge that biomass energy means that cars will eat human food.

European lawmakers seem anxious to brake the biofuel bandwagon. On Thursday, British Prime Minister Gordon Brown called on G-8 countries "urgently to examine the impact on food prices of different kinds and production methods of biofuels, and ensure that their use is responsible and sustainable." France's agriculture minister has promised to unveil proposals at next week's European Union agriculture council that will ensure "absolute priority must be given to agricultural production for food" over biofuels. Germany's environment minister Sigmar Gabriel said this month that he was considering canceling laws requiring a minimum of 10% of petrol be plant-sourced by next year, and 17% by 2020.

Just because some European politicians have finally decided to ride the clue train on biomass energy and food does not mean we should expect to see a decrease in demand for crops to create liquid transportation fuels. Oh no. As food prices rise the pressure to reduce biomass energy subsidies might lead to some subsidies cuts. But rising energy prices will make crops more useful as energy sources even at higher price points for the crops.

I expect the biomass energy problem to get worse due to advances in technology that lower the costs of converting food crops to energy. Even the development of technology to exploit non-food crop biomass energy sources such as switch grass will increase the demand for crop land to grow biomass for energy and therefore will cause a shift of crop land away from food and toward energy.

The demand for biomass energy is just one of the causes of very high grain prices. Industrialization raises living standards and the more affluent people want more meat which takes more grain to grow.

First, there's the march of the meat-eating Chinese - the growing number of people in emerging economies who are, for the first time, rich enough to start eating like Westerners. Since it takes about 700 calories' worth of animal feed to produce a 100-calorie piece of beef, this change in diet increases the overall demand for grains.

Second, there's the price of oil. Modern farming is highly energy-intensive: a lot of BTUs go into producing fertilizer, running tractors and transporting farm products to consumers.

Population growth is another cause of rising food prices. Over population is the energy and food problem we most ought to do something about.

If you haven't been following agricultural commodity prices the rates of price increases have been very fast.

In fact, in just the past year a number of commodities crucial to food manufacturers have soared to record-breaking prices, with wheat up 107 percent, soybeans 65 percent and corn 61 percent.

This past year's price increases come on the heels of substantial price increases in the previous few years. Corn at $6 a bushel and wheat at $12 a bushel are shocking after corn sold for $1.76 per bushel in 2001.

The impact of rising food prices is felt most in the poorest countries because the poorest spend over half their income for food.

The effect is far more pronounced in developing countries, where 50-60 per cent of income goes on food, compared with 10-20 per cent in the developed world.

Several Asian countries have imposed controls on rice exports. Its price jumped 40 per cent in three days recently, when India and Vietnam banned exports, an FAO official said.

Asian countries which ban crop exports will improve food availability within their borders. But most of the shifts of crops into biomass energy are going to occur in countries which have large food surpluses such as the United States and Brazil. The Brazilians are going to ramp up a big biomass energy industry as long as it is profitable. That leaves less and higher priced crops available for export to countries where people are hungry. High energy prices cause reductions in exported crops.

Brazilian Agriculture Minister Reinhold Stephanes attempts to deny the obvious by claiming that biofuels do not compete with food crops.

In Brazil, ``biofuels do not compete with food crops,'' Stephanes said today in a Bloomberg Television interview. ``That isn't the case in other parts of the world.''

Assorted countries are restricting wheat exports too.

Thailand, the world's largest rice exporter, is reportedly flirting with the idea of doing the same, even as its farmers toil to plant a third crop of rice this year, one more than usual. Wheat, too, has seen the scythe of political maneuvering: Last week, Russia extended for 60 days a ban on wheat exports. China and Argentina have adopted restrictions; in Pakistan, where farmers have just begun to harvest the annual wheat crop, officials yesterday said the country most likely will fall millions of acres below the expected goal, prompting the government to dispatch soldiers to guard grain elevators.

I think this presages what is going to happen with oil exports. As oil production starts declining over the entire world many countries that now export oil will cut back on exports in order to satisfy domestic demand. Therefore oil importing countries will be hit harder than you might expect just from looking at total oil production numbers.

The poorest people (who parenthetically need to have a lot fewer babies) are also experiencing a much higher inflation rate than people who shop in grocery stores is developed industrial countries. The people who shop in stores are paying prices that include a lot of processing costs. So when the price of a bushel of corn doubles and doubles again the price of Corn Chex might go up by tens of a percent at most. But for poor Third World town dwellers who buy raw corn kernels or wheat kernels the increase in price they see is more like the bushel price increase. Ditto if they buy raw wheat kernels or rice kernels.

Food prices have started increasing quite dramatically.

At $1.32, the average price of a loaf of bread has increased 32 percent since January 2005. In the last year alone, the average price of carton of eggs has increased almost 50 percent.

Even though corn has soared to around $6 per bushel versus $2 per bushel just a few years ago.

The market is expecting a bullish crop report. Farmers are expected to plant 7 million or 8 million acres less corn because of high fertilizer costs. Soybean makes its own nitrogen and doesn't require fertilizer. If the report confirms this number, well use more corn than we produce next crop year. And as a result, new all-time high prices will be justified.

High fertilizer prices could potentially reduce fertilizer use and therefore reduce yield per acre. More land will get put into production though. So expect a reduction in wildlife habitats.

Share |      Randall Parker, 2008 April 14 12:09 AM  Energy Biomass


Comments
Wolf-Dog said at April 14, 2008 12:44 AM:

How about genetically engineered new trees? For instance there are hybrid poplar trees that grow an astounding 8 feet per year. The kind of biomass they are talking about, is the biomass intended for conversion to liquid fuels, and in most cases, this is food.

1) But once cellulosic ethanol becomes commercially feasible, then food will not be converted into fuel, because there is plenty of cellulose-biomass in comparison to food-biomass. A lot of cellulose can be planted in regions that are not suitable for agriculture.

2) Biomass (including fast growing algae) can be burned directly to generate power to charge electric cars. This direct method is actually far more efficient than converting biomass to liquid fuels for internal combustion engines.

Once advanced batteries are ready for mass production within less than a decade, liquid fuels will be history.

JMG3Y said at April 14, 2008 5:02 AM:

This seems to beg what is perhaps a naive question - What effect is the falling dollar having on actual global food prices? Just as prices over time need to be adjusted for inflation, I presume that to see global food price trends, food prices in dollars should be adjusted to the global pool of currencies that represent their relative shares in the global food trade.

Brock said at April 14, 2008 9:24 AM:

I think Wolf-Dog's right about cellulosic and algae-based fuels. They're a lot more efficient than food-mass, and there's no meaningful competing use (which will keep prices down).

Industry is aware of this issue too. A recent report from Boeing pointed out that you would have to plant an area the size of Florida just to replace 15% of the jet fuel used today if you tried to use soybeans or corn. That's wasteful as hell and unsustainable long-term, and they know it. As a comparison, a land-mass equal to Maryland could replace 100% of the jet fuel used world-wide if you used algae farms. That's a tremendous advantage. And algae can be grown using brackish water unsuitable for food crops, so it can be grown on land that's not even in competition for corn or wheat. Considering the world's shortages in potable water (both today and worse in the future) that's another huge advantage.

Bottom line: algae is 20x as efficient per acre and uses cheaper land and cheaper water. Done. The biofueld-driven rise in fuel prices is a blip, to recede within a decade. The increase in demand from China and other developing nations of course is not a blip, but at least it's not all bad news.

Wolf-Dog said at April 14, 2008 11:41 AM:

But an important point of burning biomass directly in power plants to charge electric batteries, is that the ash of this biomass would replace all the fertilizer that was used to grow this biomass, and the carbon dioxide would be 100 % recycled when the biomass grows back to burn again. Probably no more than 100 to 150 gigawatts of extra power would be needed to charge 300 million electric cars every day.

Additionally, Hillary Clinton's plan is to make sure that by 2025, at least 25 % of the power will be generated from wind, solar, and biomass. This is realistic, and this much power would be enough to charge 300 million electric cars. But then, if this war continues, there will be no money to invest in these energy programs, and the purpose of this war, as far as oil companies is concerned, is to make sure that no money is leftover to invest in energy R & D.

Brock said at April 14, 2008 12:10 PM:

W-D, I don't think it really matters too much if they use biomass at the central plant or at the car. You trade off efficiency of burn for transmission loss and losses from charging the battery. You might also get better range and easier re-fueling with liquid fuels, the convenience of which cannot be denied.

"Hillary Clinton's plan is to make sure that by 2025, at least 25 %..."

Whether we get to 25% or not has everything to do with economics and little to do with Hillary Clinton (or any other President). You can't centrally plan or subsidize something the size of the US energy industry (let alone global energy). It the economics makes sense we'll do it; if not, not.

"the purpose of this war, as far as oil companies is concerned, is to ..."

If that comment was directed at me, don't even bother. Suffice it to say we're just going to have to agree to disagree on the causes and purposes of the occupations of Iraq and Afghanistan (they really aren't "wars" in any conventional sense). Briefly, I'm on the side of the fence that believe we are opposing Fundamentalist Islam in the same sense that we opposed global Communism 50 years prior. And whatever you may believe about how we're doing over there, we're certainly getting better outcomes than we did in Vietnam and Korea.

Lastly, the real reason we have less money to spend on R&D these days has little to do with the amount of money spent on defense (not so different relegative to GDP than historical averages) and much, much more to do with entitlement programs like Social Security. Out socialist programs are beginning to weigh us down as heavily as they do Europe, and look at the economic "vitality" it has earned them.

Wolf-Dog said at April 14, 2008 12:52 PM:

If you burn a gallon of ordinary gasoline in a power plant to spin a turbine to charge an electric car, the efficiency is like getting more than 100 miles per gallon. In other words, directly burning biomass in a power plant to charge an electric car, is far more economical than converting the biomass to liquid fuels to burn in an internal combustion engine based car.

PJ said at April 14, 2008 2:32 PM:

Brock,

I agree that our government's military budget and defense spending is not the primary reason for the shorthanded investment of R&D for energy, but it is rather oversimplifying the argument by shifting the blame to "Socialistic" programs like Social Security benefits. If we anything, I think we can agree to say that our budget needs a bit of restructuring and fixing.

As for the food prices rising, I would like to see how and what the United States is planning to do in this situation. I haven't read any articles about how our government is reacting as of yet.

James Bowery said at April 14, 2008 2:38 PM:

I was in a meeting with a congressional candidate last Friday evening where a rural Pacific Northwest county was represented by two of its commissioners complaining that "environmentalists" had gotten a ban placed on any use of forest products for fuels -- this includes ground debris that has to be cleared out anyway for fire control, not to mention hundreds of millions of annual board-feet of timber that is going unharvested in previously managed timber (not old growth) areas.

I guess ADM's lobbyists must really want people to starve.

Brock said at April 14, 2008 3:37 PM:

W-D, I agree that it's more efficient in some respects. I'm just not sure consumers will go for it. The option to "recharge" with a two-minute fill-up at a gas station is a mandatory feature for lots of people. Until you can fix that problem liquid fuels will be with us for a while.

BP said at April 14, 2008 5:40 PM:

Refuse dumps will become valuable resources. We have landfills full of tires, plastics, wood etc. If the shortage of food and petro products becomes more acute, it will become financially worth while to mine the old "dumps" and to recycle the stream of waste products for energy. This might be a good time to purchase refuse/disposal companies that are building and filling "sanitary land fill" sites. The oil in one discarded tire is probably worth several dollars today -- let alone a few years from now when energy prices have escalated even more.
BP

Randall Parker said at April 14, 2008 6:02 PM:

Guys,

Don't get distracted by political issues like Iraq. Don't get distracted by "environmentalists". The market forces are much larger.

Oil prices keep going up. Supply isn't going to keep up with growing demand. So the incentive to convert more biomass to energy will continue to grow. Where will this trend take us?

I do not buy the argument that cellulosic technology will reduce the amount of crop land reallocated to biomass energy crops. Cellulosic technology will work with farm crops too. We are likely to see all of what comes from a farm field converted to ethanol.

If trees create more biomass energy per acre per year then expect to see corn and wheat fields converted into forests.

What I want to know: How high will rising Asian demand for food and energy push up the prices of crops?

Randall Parker said at April 14, 2008 6:25 PM:

JMG3Y,

The decline of the dollar has contributed to the rise in food prices since people with stronger currencies can buy more dollars with their currencies. But the rise in crop prices has far outpaced the decline in the dollar. Corn prices have tripled in the last 7 or 8 years.

We are looking at multiple sources of demand coming together to grow faster than output can grow. Biomass energy, population growth, and rising affluence in Asia are together boosting demand.

James Bowery said at April 14, 2008 7:35 PM:

I didn't mention environmentalists, I mentioned "environmentalists" in the context of ADM lobbyists. There is a difference. Market forces involve public choice rent seeking by powerful lobbies and sometimes they pose.

Randall Parker said at April 14, 2008 9:29 PM:

Rent seeking ADM and farmers: Take away the subsidies and we'd still be looking at big growth in biomass energy. Granted, the amount of ethanol produced would be lower. But it would still be large.

Again, market forces alone are enough to jack up the prices of grain crops. Both the high and rising price of oil and the rising Asian food demand are enough to cause much higher food prices.

Fat Man said at April 14, 2008 9:34 PM:

"If you burn a gallon of ordinary gasoline in a power plant to spin a turbine to charge an electric car, the efficiency is like getting more than 100 miles per gallon."

I doubt it. A combined cycle turbine plant might convert as much as 60% of the thermal energy of combustion into electricity. Then the electricity must be transmitted and used to charge a battery, which in turn discharges and is used to power a motor. Let's say that each of those steps occurs at 90% efficiency. 60%*90%*90%*90%*90% = 39%. While that is better than the 15% often cited for ICE powered automobiles, it suggests that 100mpg equivalence is going to be limited to small vehicles that would get more than 35 mpg anyway.

Paul F. Dietz said at April 14, 2008 9:43 PM:

Refuse dumps will become valuable resources.

This is already happening, by means of capture of methane from anaerobic decomposition of the biomass in the landfills. There is now beginning a trend to deliberately engineer landfills to accelerate this process, turning them into 'bioreactors' for methane production.

http://www.yolocounty.org/recycle/bioreactor.htm
http://www.epa.gov/garbage/landfill/bioreactors.htm
http://www.bioreactor.org/

David Govett said at April 14, 2008 10:27 PM:

Biomass gives me gas.

Wolf-Dog said at April 15, 2008 5:28 AM:

Far Man: At least you agreed that burning one gallon of gasoline in a power plant to charge an electric car is more efficient than burning the same gasoline in an internal combustion engine based car. But now, let us focus on the main subject of this discussion, which is biomass. If you burn biomass in a power plant to make electricity, this is more efficient than converting biomass into liquid fuels. Thus it is better to charge electric cars by directly burning biomass in power plants, bypassing liquid fuels.

Paul D. said at April 15, 2008 11:04 AM:

Thus it is better to charge electric cars by directly burning biomass in power plants, bypassing liquid fuels

This is true only if conversion of biomass with maximum efficiency is more important than focusing limited biomass capacity where it is most needed. I suggest the latter is more likely to be the case, where biomass would provide liquid fuel for use in situations where electrification is not possible (fuel for PHEVs, aircraft, possibly ships).

cancer_man said at April 15, 2008 5:39 PM:

"Oil prices keep going up. Supply isn't going to keep up with growing demand."

Randall, you really need to go over your econ 101 text again. No offense, but you can't keep making such basic errors when discussing oil or any other commodity. Supply *always* equals demand as price adjusts. There is no notion of "keeping up." This relationship is only broken if a government places price controls domestically as we saw in the 1970s.

Randall Parker said at April 15, 2008 6:38 PM:

cancer_man,

I can draw a demand line and a supply line and show how they intercept. But the terms supply and demand get used in different ways. I'm using these terms in a way that is not how it is taught in macro or micro economics but which is well understood.

Supply isn't growing. Okay? That's what I mean by "keeping up". In other areas supply can expand as demand increases and prices do not go up. But with oil at this point that doesn't happen.

Economists do not own the dictionary. Lots of words in it have multiple definitions. Don't get bent out of shape when I use a definition that is other than that preferred by the practitioners of one academic discipline.

cancer_man said at April 15, 2008 8:37 PM:

"Economists do not own the dictionary. Lots of words in it have multiple definitions. Don't get bent out of shape when I use a definition that is other than that preferred by the practitioners of one academic discipline."

Huh?

Supply and demand are very easy concepts, and you are using them exactly how economists use them. Your problem is that you sometimes forget how they relate. This is obvious since as long as price can move up and down, no one who understands the issue would say something like "supply isn't going to keep up with demand."

It isn't a language issue, but a conceptual one.

Randall Parker said at April 16, 2008 6:31 PM:

cancer_man,

More people want something and more of something can't get made then supply isn't keeping up with demand. Demand has increased. Supply did not increase. Supply is how much is available.

cancer_man said at April 17, 2008 12:28 AM:

"More people want something and more of something can't get made then supply isn't keeping up with demand. Demand has increased. Supply did not increase. Supply is how much is available."

Randall, you are thinking of some imaginary "pent up demand" or something. I don't really know what you are thinking since you are still not making sense.

Supply and demand are in equillibrium today. There is no issue of "not keeping up." This is the most basic concept in economics, and you aren't getting it for some reason.

Randall Parker said at April 17, 2008 6:04 PM:

cancer_man,

Again, I understand given any supply curve and demand curve there's a price at which the two intersect and that you call that equilibrium. Fine.

Meanwhile, demand does go up and down. Do you deny this?

Also, supply goes up and down. Do you deny this?

You might prefer to say that supply curves shift. Meanwhile, I've explained it another way that you object to. Yet I understand supply and demand curves.

cancer_man said at April 17, 2008 8:36 PM:

If you understand how supply and demand curves shift, then you wouldn't write something like "supply is not keepin up with demand. That statement implies a gap, yet there is no gap. A geologist who later got a degree in economics once wrote how few of his scientist collegues understand this. It isn't a hard concept so I assume a psychological block.

Randall Parker said at April 17, 2008 11:00 PM:

cancer_man,

If prices rise while demand rises then supply isn't keeping up with demand. If you can't understand that then you have the block.

Next I expect you to claim there is no such thing as shortages, only the price at which demand and supply equal. Well, why not just delete "shortage" from the dictionary? The term just confuses people and prevents them from seeing reality in the one true economic way.

cancer_man said at April 18, 2008 7:09 AM:

Yes, supply is keeping up with demand.

No need to throw away the word "shortage" because it can happen *locally* for a very *short* period of time. This isn't what you are talking about though. Shortages can also occur when a government induces them for a specific country.

In this case you are bot getting basic economics. The "one true way" is to use logic and understand that total supply and total demand are always equal. You aren't the only one who doesn't get this. Many politicians and the peak oil crowd don't either although not 1 in 100 economists makes this error.

Randall Parker said at April 18, 2008 5:31 PM:

cancer_man,

I get basic economics. Your "one true way" conflicts with very commonly used and a perfectly sensible way of using the terms supply and demand.

Now, is there value in explaining how a demand curve and a supply curve intersect? Sure. But when you insist I do not get it you are just being haughty and wrong.

Randall Parker said at April 18, 2008 5:51 PM:

cancer_man,

In order to say as you do:

Yes, supply is keeping up with demand.

you have to pretend. No, this is not right. Suppose demand is rising and supply is not rising. Price rises as a result. You call that supply keeping up with demand? But demand is rising. Yet supply is not changing. So then demand is rising yet supply is keeping up with demand by prices rising? That's not right. Supply did not keep up and therefore prices rose.

You aren't even making an argument that is correct as terms are used by economists.

cancer_man said at April 18, 2008 6:56 PM:

No, economists don't say things like "supply did not keep up."

By the way, where are the shortages that you claim exist in the oil market? Can you actually find one?

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