‘Absolute madness’ of biofuels

FROM-Washington Times

By Robert Bryce

Last month, Peter Brabeck, the chairman of the Swiss food giant Nestle, declared that using food crops to make biofuels was "absolute madness."

The epicenter of that madness is the U.S. corn-ethanol sector. This year, it will consume 40 percent of all U.S. corn - that's about 15 percent of global corn production or 5 percent of all global grain - in order to produce a volume of motor fuel with the energy equivalent of about 0.6 percent of global oil needs.

Congress lavishes about $7 billion in annual subsidies, mandates and tariff protections upon an industry that is helping push global food prices to all-time highs and shrink grain reserves at the very same time that global grain production is faltering and protests over food prices are becoming common.

The quantity of grain to be consumed this year for ethanol production - 4.9 billion bushels - boggles the mind. That's more than twice as much as all the corn produced in Brazil and more than six times as much as is grown in India. Put another way, that's more corn than the output of the European Union, Mexico, Argentina and India combined.

Despite these facts, President Obama said last month in his State of the Union speech, "We can break our dependence on oil with biofuels." Meanwhile, Newt Gingrich, former speaker of the House, who is considering a run for the 2012 Republican presidential nomination, was in Iowa recently, cravenly wooing the ethanol producers and slamming "big city" critics of the ethanol industry. Alas, there's little reason to expect much bravery out of Mr. Gingrich's fellow Republicans on Capitol Hill. Current Speaker John A. Boehner, Ohio Republican, recently told reporters not to expect cuts to the ethanol subsidies because they are "not in the discretionary spending pot."

While Mr. Obama prevaricates and Congress dithers, ethanol boosters are once again claiming that their sector has negligible effect on grain prices. However, the events of the past few weeks - corn futures at near-record highs and social unrest related to food prices - are nearly identical to the mayhem that occurred in 2007 and 2008. Back then, more than a dozen studies, including ones by Purdue University, the World Bank and the Congressional Research Service, exposed the link between increasing ethanol production and higher food prices. Soaring food prices led to violent protests in Egypt, Cameroon, Ivory Coast, Haiti, Mauritania, Ethiopia, Madagascar, the Philippines and Indonesia. Worries about adequate food stocks led several countries to ban food exports.

In May 2008, the Rand Corp. warned that diverting corn to the ethanol sector was not only bad economics, but a security threat: "Using corn for ethanol is economically inefficient and has harmed U.S. national security. Diverting corn from food to ethanol production has pushed up world market prices for grains and other foods, which, in 2008, resulted in riots in a number of developing countries."

In recent weeks, we've seen food price increases and protests that are reminiscent of 2008. There have been food riots in Algeria and Mozambique. Last month, about 8,000 Jordanians protested in the streets of Amman and other cities over rising food prices. In Egypt, the world's biggest wheat importer, wheat prices are up by 30 percent over the past 12 months. Those higher wheat prices are being stoked by rising corn prices, which have doubled over the past six months and are at about $7 per bushel. "Higher corn prices always means higher wheat prices," says Bill Lapp, president of Advanced Economic Solutions, an Omaha-based commodity consulting firm.

In December, a study by two U.S. agriculture economists, Thomas Elam and Steve Meyer, found that corn prices are being directly stoked by demand from the ethanol sector. Mr. Elam and Mr. Meyer, who have done consulting work for the meat industry, found that without the ethanol mandates, the average price of corn would be lower by more than $2 per bushel. They also conclude that "biofuels policy has caused significant cost increases for all users of feedgrains."

David Orden, a senior research fellow at the International Food Policy Research Institute in Washington, told me that surging corn prices are "a continuation of what happened in 2008." The push for biofuels, he said, "has clearly tightened up agricultural commodity markets. That's good for farmers, but it is not good for poor people around the world."

Many of those poor live in the United States. Some 43.6 million Americans, about 14 percent of the population, are receiving federal food stamps. Since October 2008, the number of Americans relying on food stamps jumped by 41.5 percent, and enrollment in the program has increased for 26 consecutive months. And thanks to the ethanol scam, those many millions are being priced out of the meat aisle. Over the past year, beef prices have risen more than 6 percent, and pork prices are up 11 percent. Economists are expecting overall grocery prices in the United States to rise by about 5 percent this year.

But the real - and likely more dangerous - food-price increases will happen outside of this country. Last year, the Organization for Economic Cooperation and Development projected that global grain prices are likely to be as much as 40 percent higher by 2020, and a London-based nonprofit entity, ActionAid, predicted that some 600 million more people could be left hungry by 2020 because of increased production of biofuels.

Mr. Brabeck, the chairman of Nestle, the world's biggest food company, has rightly put the spotlight on the biofuels madness. As the head of a company with $100 billion in annual food-related revenues, Mr. Brabeck clearly has a keen understanding of the global food industry. And last month during the World Economic Forum in Davos, Switzerland, he identified the stunningly obvious solution to the ongoing insanity. "No food for fuel," he said.

It's time - no, it's long past time - to heed Mr. Brabeck's advice. "No food for fuel" should be the mantra on Capitol Hill and at the United Nations. In addition, it should be a required oath for all of the candidates (Mr. Gingrich in particular) who are planning to campaign in Iowa for the 2012 presidential election.

Stop the madness.

Robert Bryce is a senior fellow at the Manhattan Institute. His latest book is "Power Hungry: The Myths of 'Green' Energy and the Real Fuels of the Future" (PublicAffairs, 2010).