More on Ethanol Policy and Food Prices

Michael Giberson

In an op-ed in the Washington Post, Lester Brown and Jonathan Lewis seem overly generous in their interpretation of the motivations for the now-obvious-failure of ethanol policy in the United States:

Food-to-fuel mandates were created for the right reasons. The hope of using American-grown crops to fuel our cars seemed like a win-win-win scenario: Our farmers would enjoy the benefit of crop-price stability. Our national security would be enhanced by having a new domestic energy source. Our environment would be protected by a cleaner fuel. But the likelihood of these outcomes was never seriously tested, and new evidence has shown that the justifications for these mandates were inaccurate.

I must have missed the analysis indicating that ethanol was intended to create crop price stability. I thought the hope was always that the policy would push food prices up. Isn’t that how increases in demand work?

Also, the national security argument for ethanol always struck me as false. We import most of our oil from Canada and Mexico, and with oil a fungible product in an international market, it is hard to see just how some other nation might wield oil-withholding as an offensive threat.

Possibly the move to increased ethanol could have lead to environmental improvements, but biofuel mandates are a bad way to implement policy even if it were true that they produced benefits. As a practical matter, the environmental arguments for ethanol have always been mostly a smokescreen. Ethanol policies were never popular in Iowa because of their potential for improving air quality in Los Angeles or New York City. “Food-to-fuel mandates” always smelled like political pork to me, so I guess I’ve never had a generous opinion of the motives of its political supporters.

(In fact, there is some danger that all ethanol technologies will be unfairly tainted by an association with current failed policies mostly intended to drive up corn prices. Supporters of non-corn-based alternatives for making ethanol may want to distance themselves from the pork-barrel politicking of the agribusiness lobby.)

Of course, Brown and Lewis are promoting a change in policy, for which the support of politicians is needed. I suppose, purely as a rhetorical device, it is useful to not describe the targets of your appeal as a bunch of …. Well, it is probably useful not to finish that sentence.

The Brown and Lewis editorial does bother me in parts. Does most of the energy used to make ethanol actually come from coal? I would have guessed oil for fuel and natural gas for fertilizer. Also, like many people (myself included), Brown and Lewis are eager to blame world-wide high food prices on ethanol policy, but most of the analysis I’ve seen in the newspapers is thin. The argument makes a lot of sense, but there are other obvious factors (high fuel costs, increasing world demand for meat consumption, increasing world demand for food generally), so it would be nice to see a careful sorting out of the contributing factors.

The conclusion, however, is good:

[I]t is impossible to avoid the conclusion that food-to-fuel mandates have failed. Congress took a big chance on biofuels that, unfortunately, has not worked out. Now, in the spirit of progress, let us learn the appropriate lessons from this setback, and let us act quickly to mitigate the damage and set upon a new course that holds greater promise for meeting the challenges ahead.

(HT to Tim Haab at Environmental Economics)


5 thoughts on “More on Ethanol Policy and Food Prices

  1. “Brown and Lewis are eager to blame world-wide high food prices on ethanol policy, but most of the analysis I’ve seen in the newspapers is thin.”

    I do not need to see an exact analysis of the contribution from this program to that % change in rice prices. The ethanol program is de facto stupid because it forces more ethanol onto the market by requiring a certain quantity to be sold as fuel. Prima facie evidence that something will go wrong and wrong it went.

  2. the problem is, is that we ship all of our oil overseas and buy it from third world countries for a $100.00 a barrel. which is totally ridiculous. we have enough oil in our own country to support our selves, but to many tree huggers and enviromentalists don’t want to see us drilling our own oil or building more refineries to produce our own fuel. china is drilling for oil 60 miles off the coast of florida. why. who knows. it’s all about the almighty dollar. which in my opinion isn’t worth spit. you’ll never here government officials or even our president complain about gas prices because they don’t have to pay a cent for it. you can blow smoke all you want about why gas prices are so high. one word comes to mind, “GREED”. i don’t see how low income families can even make ends meet with gas prices as high as they are. they are working just to be able to put gas in their vehicles to go to work. no wonder there are so many drive offs from gas station, people punching holes in other peoples gas tanks to get gas for themselves.
    i guess the old saying goes, desperate times call for desperate measures. this country is heading for a revolution or another civil war. that’s the american people against our own government. we’re too busy worrying about other countries and their problems instead of dealing with our own. “HEY WHITE HOUSE YOU’RE FAILING US”.

  3. the problem is, is that we ship all of our oil overseas and buy it from third world countries for a $100.00 a barrel. which is totally ridiculous. we have enough oil in our own country to support our selves, but to many tree huggers and enviromentalists don’t want to see us drilling our own oil or building more refineries to produce our own fuel. china is drilling for oil 60 miles off the coast of florida. why. who knows. it’s all about the almighty dollar. which in my opinion isn’t worth spit. you’ll never here government officials or even our president complain about gas prices because they don’t have to pay a cent for it. you can blow smoke all you want about why gas prices are so high. one word comes to mind, “GREED”. i don’t see how low income families can even make ends meet with gas prices as high as they are. they are working just to be able to put gas in their vehicles to go to work. no wonder there are so many drive offs from gas station, people punching holes in other peoples gas tanks to get gas for themselves.
    i guess the old saying goes, desperate times call for desperate measures. this country is heading for a revolution or another civil war. that’s the american people against our own government. we’re too busy worrying about other countries and their problems instead of dealing with our own. “HEY WHITE HOUSE YOU’RE FAILING US”.

  4. The input fuel vs. unconverted output is around 1:15 for corn. It is about 1:3 for conversion to ethanol. Ethanol has 80% or so the BTU of gasoline.

    The arithmetic is not all that hard. The wholesale price of ethanol x (1 + the BTU efficiency loss) + 50 Cents = the wholesale price of gasoline for the last few years.

    50 Cents = the tax waiver for ethanol.

    Given that the gasoline market is overwhelmingly larger than the ethanol market, I suspect the above formula will remain accurate for the time being.

    Corn in Chicago/Decatur is also priced in $. The Euro price of corn has not increased nearly as much as the $ price, which is predictable for a commodity.

    JBP

  5. When we first started ramping up use of ethanol for fuel instead of fun, and hoping for Snuffy Smith and all his fellow moonshiners to fill up our gas tanks, one of the good features of the program was supposedly that the rest of the corn that is left after fermentation and distillation could be fed to the cows and pigs, who knows, maybe even humans, so that most of the food value of the corn would still go for food. This still seems perfectly reasonable, as we have been using stuff like that forever. Go to Agway and read the label on the “Trim” or “Champion” or whatever names they are putting on the horse feed these days, and you will probably see something like “brwewers’ dried grains” or distillers’ whatever, because we have been brewing and distilling ethanol for a long time and using the leftovers for food. Most “brewer’s yeast” in the grocery store today may not be from brewing actual beer, because the beer (probably the hops) leaves a bitter taste, but originally that was where it came from, and that is one of the most nutritious foods that mother nature ever devised for us. So, I wonder what is really going on here, and have been looking around, but haven’t found the answer. Seems as though my fellow scientists and engineers could have done better, but maybe there’s an explanation somewhere.

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