How (corn) ethanol kills: a lesson in basic economics pertaining to fuel supply, fuel demand and price.

| March 12, 2008 | 5 Replies

In an earlier post, I argued that people need to better appreciate that dollars are fungible (see here  and here).  Why is it important to understand that dollars are fungible?  A case in point is the new American enthusiasm for turning food into fuel. Consider this report from Fortune Magazine:

The growing myth that corn is a cure-all for our energy woes is leading us toward a potentially dangerous global fight for food. While crop-based ethanol -the latest craze in alternative energy – promises a guilt-free way to keep our gas tanks full, the reality is that overuse of our agricultural resources could have consequences even more drastic than, say, being deprived of our SUVs. It could leave much of the world hungry.

We are facing an epic competition between the 800 million motorists who want to protect their mobility and the two billion poorest people in the world who simply want to survive. In effect, supermarkets and service stations are now competing for the same resources.
 
This year cars, not people, will claim most of the increase in world grain consumption. The problem is simple: It takes a whole lot of agricultural produce to create a modest amount of automotive fuel.

The grain required to fill a 25-gallon SUV gas tank with ethanol, for instance, could feed one person for a year.

And consider this additional bad news from Earth Policy Institute: 

We are witnessing the beginning of one of the great tragedies of history. The United States, in a misguided effort to reduce its oil insecurity by converting grain into fuel for cars, is generating global food insecurity on a scale never seen before.

The world is facing the most severe food price inflation in history as grain and soybean prices climb to all-time highs. Wheat trading on the Chicago Board of Trade on December 17th breached the $10 per bushel level for the first time ever. In mid-January, corn was trading over $5 per bushel, close to its historic high. And on January 11th, soybeans traded at $13.42 per bushel, the highest price ever recorded. All these prices are double those of a year or two ago.

As a result, prices of food products made directly from these commodities such as bread, pasta, and tortillas, and those made indirectly, such as pork, poultry, beef, milk, and eggs, are everywhere on the rise. In Mexico, corn meal prices are up 60 percent. In Pakistan, flour prices have doubled. China is facing rampant food price inflation, some of the worst in decades.

Here’s are a few rhetorical questions to consider:  Can Americans justify filling up any more of those big SUV fuel tanks now that there is solid evidence that doing so will cause families on the other side of the world to suffer and die?  Can we justify cranking up the heat in the winter to stay toasty warm?  Should we merrily take long trips without considering the effects of burning this extra fuel on food prices (and thus food availability) to those people who are living on the margin?  Can we justify building more houses in the exburbs? 

We are now witnessing a collision between A) our desire to have fun and feel prestige through the discretionary buring of fuel, versus B) our ability to honestly look in the mirror to see ourselves as kind, decent and caring people.

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Category: Consumerism, Economy, Energy, Environment, Food, Good and Evil

About the Author ()

Erich Vieth is an attorney focusing on consumer law litigation and appellate practice. He is also a working musician and a writer, having founded Dangerous Intersection in 2006. Erich lives in the Shaw Neighborhood of St. Louis, Missouri, where he lives half-time with his two extraordinary daughters.

Comments (5)

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  1. Niklaus Pfirsig says:

    Something that most people dont know is that ethanol is not a very good fuel. I drive a crossover, mainly because of my 14 year-old son, who is severely autistic. He has to be helped into and out of the car, and often while riding, he will often rock back and forth. A few years ago, I was driving a Honda civic and then, when he was smaller, his rocking motion would make it very difficult to keep the Honda in one lane on the highway. The crossover is heavier, and has stiffer suspension, and my son's rocking has not been able to rocj the entire vehicle as it did with the Civic.

    Any way, when I first got the crossover, which looks like an SUV but is closer in design to a minivan, my average fuel efficiency was around 25 mpg with mostly city driving. On a couple of road trip of over 60 miles, the highway mileage was 37 mpg. The Honda averaged 32 mpg city and 40 on the highway. A few months ago most of the stations in Nashville satrted carrying an e10 mix (10 percent ethanol) Since then I noticed a sharp decrease in my fuel efficiency. The average is now 18 mpg around town and 22 highway. And it is worse in cold weather.

    So the 10 percent alcohol mix requires me to use about 25% more fuel than pure low octane gasoline. the net result is the the amount of gasoline(after subtracting out the ethanol) used is increased by using the ethanol blend.

    There is a much better alternative to ethanol. Vegetable oil requires much less energy to produce, and when mixed with gasoline doesn't reduce fuel economy, and the by products can often be processed into foods. ethanol on the other hand requires a lot of energy to distill, and the by products cannot be used for food.

    Hydrogen, is also not a very good fuel. It is expensive to produce, dificult ot safely store and release little usable energy when burned (this is because the complete burning of hyrdocarbons produces a lot more water vapor in the form of steam that pushes the pistons in an internal combustion engine) than the burning of pure hydrogen.

    Most of the population of the US, really don't have a choice. They can't afford to run out and buy a trendy $30,000-$40,000 hybrid, and since most cities in the US have little or no mass transit, and the zoning in many urban areas do not allow for very much flexibility in the commercial/residential zones, most of Americans have to own a car simply because the infrastructure (or lack thereof) forces it on them.

  2. uncle dave says:

    Well, I think there may be a common misconception here! I don't think any consumer said "hey, lets subsidize corn/ethanol production!" to his US Rep. I do think maybe there was a lobbyist or two who might have said words to that effect, though. In the same way that Food Stamps are more effectively championed by the grocery industry than by advocates for the hungry…and in the same sense that the military is provided with weapon systems it doesn't want, but someone really wants to build for them. You might be beating up a straw man here Erich! Are people saying "I want internal combustion!", or are they saying "I want a popular vehicle that is fun to drive". Oh, by the way, Niklaus, our Prius cost about the same as a Corolla after the tax credit. Less than a small SUV. (say, didn't I tell you about your hat?)

  3. Erich Vieth says:

    At the Annual Meat Conference this week, a gathering of retail meat industry, economist Tom Elam reported his estimate that the ethanol mandate would result this year in each chicken raised by an American farmer costing 53 cents more to raise than it would have cost without the mandate. As for turkeys, well, it'll cost the farmer $3.40 more to raise each one.

    As Federal Reserve Chairman Ben Bernanke explained to the Senate Banking Committee last month, “a significant portion of the corn crop is being diverted to ethanol, which raises corn prices.”

    And he added, there are “knock-on effects. For example, some soybean acreage has been moved to corn production, which probably has some effect on soybean prices. So there is some price effect on foodstuffs coming through the conversion to energy use.”

    http://www.msnbc.msn.com/id/23632933/

  4. Erich Vieth says:

    Bill Maher: Scientists have been on the biofuel bandwagon – how did they get it so wrong? As Time puts it, "It was as if the science world assumed biofuels would be grown in parking lots. The deforestation in Indonesia shows that's not the case. It turns out the carbon lost when wilderness is razed overwhelms the gains from cleaner-burning fuels."

    http://www.huffingtonpost.com/bill-maher/the-biof

  5. Erich Vieth says:

    There is a lie in here somewhere–it's not just statistical variance:

    Biofuels have forced global food prices up by 75 percent — far more than previously estimated — according to a confidential World Bank report published in a British newspaper on Friday. . .

    The figure contradicts U.S. government estimates that plant-derived fuels have contributed less than 3 percent to food-price increases, the newspaper said.

    http://www.msnbc.msn.com/id/25530583/

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