Ethanol dilemma: Fuel for vehicles or food for humans

Ethanol dilemma: Fuel for vehicles or food for humans

Less pollution is the agreed mantra of today’s environmental friendly world opinion running to beat the emissions. In this arena gets mentioned the name of ethanol, a clear, colourless, liquid fuel produced from a variety of crops including sugarcane and corn. The usage originates because ethyl alcohol with a higher octane rating than gasoline when mixed with latter reduces the level of emission created by fuel combustion in gasoline engines and also extends the use of gasoline. It all sounds very efficient and environmentally-friendly till one looks at the fallout on the food sector. The biggest thrust is coming on the American continent where not only the United States is shifting the usage of its corn production to get more and more ethanol but also countries like Brazil are obsessed with producing and exporting the same even circumventing US restrictions.

Let’s first look at the US scenario where billions of gallons of ethanol are manufactured mostly from corn and according to corn industry sources, within next eight to 10 years all the corn grown in US will be used for ethanol. The fallout on the food sector is imminent with corn prices not only pushing grocery budgets up but also meat products costing more. Add to that a large chunk of agricultural land will go under corn production which demands greater area as more ethanol-producing plants are springing up across US. The US Energy Policy Act of 2005 boosted this by launching a renewable fuel programme which gave a mandatory clause to increase absolute amounts of renewable fuels, including ethyl alcohol, to be blended with gasoline. With this programme the amount of renewable fuels produced in the US is required to increase from about four billion gallons in 2006 to 7.5 billion gallons in 2012.

Moreover, there is an added incentive for fuel distributors in the US where they get an income tax credit when they blend ethanol with gasoline in addition to a partial exemption from the federal excise tax on motor fuels provided for ethyl alcohol that is derived from renewable resources and used as fuel. In terms of 2005 world production, the United States ranked second, accounting for 45 percent of world production; the largest producer, Brazil, accounted for 46 percent of world production. Although the US has bilateral agreements with many nations, Brazil falls under a dutiable source thus in a way the increasing US production is shutting out Brazilian produce which is now looking out to European countries to promote its ethanol exports. With the US currently importing a meagre three percent of its ethanol consumption, there is an impending glut of ethanol in Brazil in next couple of years as outlined recently in Sao Paulo by one of the market leaders.

With more and more corn being siphoned off to ethanol pipelines, there will be less and less available for exports to traditional food importing countries thus exacerbating food shortages in such dependant poor countries. Jacques Diouf, Director-General of the UN’s Food and Agriculture Organisation warned last week that skyrocketing prices for such basic food imports such as wheat, corn and milk had the “potential for social tension, leading to social reactions and eventually even political problems.” “If we continue to see an increase in their (food) prices and in their import bill for food, there is a serious potential situation,” Diouf was quoted as saying.

Diouf aptly pinpointed that although the biofuel industry is directly responsible for annihilation of a few items like corn from food sector, the fallout is greater because less and less acreage will go to non-biofuel crops and add to that the cost of feeding livestock with grain. “The biofuel industry is a new factor creating demand for food for a non-food use,” he was cited in the media reports.

On the one hand, we see the White House blindly pushing for biofuels and self-sufficiency angle without giving any thought to the risky fallout on world food sector, the reaction in Europe has been more humanitarian.

Mariann Fischer Boel, European Commissioner for Agriculture and Rural Development writing in her blog said, “In this whole debate about food prices, we cannot lose sight of the effect on consumers. It hurts consumers in their pockets when food prices go up.” But she also advocated EU products calling European consumers to “put their money where their mouth is and be prepared to pay a little bit more for EU produce.”

Talking of fallout on food sector, there is another impending squeeze that is coming on world sugar markets as Brazil uses cane sugar to manufacture ethanol and world sugar prices are crashing. The European Commission which launched its sugar policy reforms in 2006 is already alarmed about the new threat posed by “ethanol production” and fluctuations in demand-supply in the sugar sector in coming years.

There is also the Catch 22-situation with respect to environmental factors. The very environment, that ethanol usage as fuel is trying to save, gets damaged by excessive corn production. It’s an established fact in agricultural sector that corn production needs more insecticides and herbicides than any other crop thus releases of nitrogen and phosphorus from corn fields damage soil quality, contaminating groundwater and polluting rivers. Talking of water, there is a double edged drawback as in addition to corn production, more water is needed to produce ethanol thus in most cases straining the same underground sources used for crop irrigation.

Ongoing droughts parching the Great Plains in US for the past five years continue to project a very ominous sign for the food sector. Fluctuating weather patterns in Europe and other parts of the world are of not much solace to the market observers as such.

In the light of these factors agricultural pundits are advocating development of more non-food sector sources like cellulose plants like switchgrass, a perennial grass grown on marginal agricultural land and does not require fertilisers, pesticides or herbicides, for the production of ethanol.

With no direct competition with food production and providing higher yields than corn and cane sugar crops, there is renewed hope to cut down the spiralling food prices if a serious effort is made about using such alternatives.

Last, but not least, a pragmatic knock came from a market specialist in Brussels as he quipped, “I hope that the European and US negotiators in Geneva know that they have a final word in the soaring food prices.” With APEC leaders meeting in Sydney last weekend getting ready to issue a statement urging the global community to conclude the Doha round of world trade talks by the end of the year, there appeared a silver lining in the dark clouds that have hovered over WTO Doha round talks.