Leaked food price report pushes ethanol debate

The University has done controversial studies on ethanol in the past, but a World Bank report leaked in early July pressed the debate even further.

The report, leaked to “The Guardian,” a British newspaper , said that production of biofuels , such as corn ethanol, have forced global food prices up 75 percent. The United States is the world’s top corn exporter , and Minnesota was the nation’s fourth-highest corn producer in 2007.

According to the Minnesota Department of Agriculture, about 27 percent of Minnesota corn in 2008 will be used for ethanol.

Even though the report includes other factors in its analysis, it’s a stark contrast to the U.S. Department of Agriculture’s contention since May that biofuels account for only 3 percent of the rise in global food prices.

“That’s a 25-fold difference,” said Ford Runge, an applied economics and law professor at the University. “My judgment is that the World Bank is closer to the mark than the U.S. Department of Agriculture, which appears to have been completely politicized.”

Ben Senauer, a University applied economics professor and co-director of the Food Industry Center, said he found 75 percent “pretty unbelievably high,” but said an International Food Policy Research Institute estimate that put that number at about 30 percent was realistic.

The World Bank president estimates 100 million people will be forced into poverty because of rising food prices. Senauer said the two estimates together mean about 30 million more people will go hungry globally due to biofuels.

“It’s not just ethanol,” Senauer said. “But ethanol is certainly a major factor.”

But Hosein Shapouri, a USDA senior economist in the office of energy policy , said the World Bank and IFPRI’s numbers are way off.

“When you look at the total biofuel production, at least on corn, 60 percent of all ethanol produced in the world is coming from sugar, which has no impact on food prices globally,” Shapouri said. He added many factors, like the increased food demand in developing nations, influence food prices.

According to USDA figures, about 80 cents of every dollar spent on food goes to transportation, processing, packaging and distribution.

“When you go and buy a box of cereal that has corn, if the price has increased it’s not because of the price of corn in making biofuels … if you look at the amount of corn that is there, it’s almost nothing,” Shapouri said.

Roger Feldman, an applied economics professor at the University, said the United States subsidizes biofuels for political reasons.

“Our energy policy is driven by this perceived need to create independence from foreign supply,” Feldman said. “And so it appeared to the policy makers that a handy and easy substitute would be to turn our abundant corn production into ethanol.”

However, Mark Hamerlinck , communications director for the Minnesota Corn Grower’s Association, said those who oppose ethanol are also politically motivated.

“The folks that really don’t want to see ethanol as part of our liquid fuel stream are those who would have the most to lose. And obviously those are oil companies,” he said.

Runge said many aspects of producing ethanol are “wrong-headed.”

“The U.S. has a very strong comparative advantage in exporting corn, but what we are doing is taking that corn and turning it into a fuel, in which we have an obvious comparative disadvantage,” he said.

Shapouri said ethanol production is important to the nation to reduce dependency on foreign oil as well as to help the environment.

“For every gallon (of ethanol) you use, you’re reducing greenhouse gas emission by some percentage,” Shapouri said, dismissing a University study released in February that found producing biofuels creates more carbon emissions than the use of biofuels saves.

“It depends on what kind of assumption you make,” Shapouri said.

The government pays a 45 cent tax credit for every gallon of ethanol produced.

Senauer said eliminating the tax credit, a move he supports, would likely cause the price of corn to drop by about $1 per bushel.

Hamerlinck said if the price of corn did fall the price of another crop would likely rise, and farmers would just grow what made them more money.

Senauer is conducting a study on the effects of increased malnutrition on death rates of children under five. He said he decided to do the study because of the government’s lack of action to counteract rising food prices.

“We thought, what would finally open policy-makers’ eyes?” Senauer said.

He said preliminary findings have shown that if the United States rapidly expands its biofuel programs using food crops, a half million children under the age of five globally will die by 2010.

“That to me is a horrifying number, one that I don’t think any of us will want to ignore,” he said.