Markets

U.S. open in 42 hrs, 59 mins

DJIA

8,280.74

-223.32

2.63%

NASDAQ

1,796.52

-49.20

2.67%

S&P 500

896.42

-26.91

2.91%

10yr Note

96.906

0.3438

0.36%

FTSE 100

4,236.28

2.01

0.05%

Nikkei 225

9,816.07

-60.08

0.61%

Hang Seng

18,203.40

25.35

0.14%

Euro (in USD)

1.396

0.0014

0.10%

Yen (per USD)

95.99

0.09

0.09%

Gold

932.40

1.70

0.18%

Oil

65.63

-1.10

1.65%

BUSINESS NEWS

INVESTING

Financial Glossary

PERSONAL FINANCE AT WALLETPOP

SMALL BUSINESS

Ethanol Bill Fuels Food Costs

By Steve Hargreaves,

CNNMoney

Posted: 2007-12-07 18:01:01

NEW YORK (Dec. 7) -- If a recently passed House bill mandating a 7-fold increase in biofuels becomes law, there's little doubt food prices will rise.

Scott Olson, Getty Images

An energy bill recently passed by the House of Representatives is calling for, among other things, an expansion of ethanol use to 36 billion gallons a year by 2022 -- a sevenfold increase.

1 of 4

The question is by how much, and is the trade-off worth it?

On Thursday the House, as part of a larger energy package, passed a bill mandating the increased use of biofuels - fuel from ethanol and other plant matter largely used to power vehicles - from current levels of about 6 billion gallons a year to 36 billion gallons a year by 2022.

The move is supported by environmentalists, who say biofuels generate about 20 percent less greenhouse gasses than fossil-based fuels like gasoline. Corn farmers and the ethanol industry are obviously on board.

The bill also has the support of those what want to reduce U.S. oil consumption. Over 60 percent of the country's oil is imported - mostly from Canada, Mexico and Venezuela. That 36 billion gallons of biofuel could replace roughly 25 percent of the nation's current gasoline consumption of about 140 billion gallons a year.

But it's clear the biofuels mandate, which calls for 15 billion gallons a year of corn-based ethanol and another 21 billion gallons from "advanced biofuels" that use other plants besides food crops, will drive up the price of corn.

Feed

More From CNNmoney

With it, the price of other corn-dependent products like chicken, pork, or items that use corn syrup, like soda, which have already seen an increase, are likely to rise further.

Karen Batra, a spokeswoman for the National Cattleman's Beef Association, said that corn prices are already up 21 percent this year. "The ranchers are already taking a hit."

Food prices overall have risen 4.5 percent over the last year, according to Brian Todd, president of the industry association the Food Institute. Meanwhile, prices for other consumer goods excluding food and energy have risen about 2 percent this year.

But Todd said rising energy prices in general have played a big part in this. In addition to transporting food by truck, the industry is dependent on other oil or natural gas-based goods like fertilizer and packaging plastic.

"In most cases, I think it's probably pretty marginal," Todd said of ethanol's impact on food prices.

The Department of Energy agrees.

"Up to 15 billion gallons [of ethanol] probably would not impact food prices significantly," said Andy Aden, a senior biofuels research engineer at DOE's National Renewable Energy Lab. "But that's where we draw the line."

Significant is a subjective measure, and the House bill will likely impact livestock producers and other corn users more than consumers, said Jacinto Fabiosa, Co-Director of the Food and Policy Research Institute at Iowa State University.

Fabiosa said only about 25 percent of the price of pork at the retail level reflects costs on the farm. So if the price of corn goes up 10 percent, the farmers' overall cost might go up 5 percent, but the ultimate retail price for a pork chop may only rise 1 or 2 percent.

"There's going to be a significant increase at the farm level, but how that translates at the retail level is another matter."

A study by Fabiosa and his colleagues, estimates that a 15 billion gallon increase in ethanol production would translate into a 4 percent increase in the retail price of eggs, a 2 percent increase in the price of meat, and a 0.5 percent increase in overall food prices.

Fabiosa noted that Americans spend only about 10 percent of their income of food, so for them the increase may be palpable. But he said people in other nations spend up to 50 percent of their income of food. That would hurt people who eat imported food like corn, wheat or soybeans, but may help overseas farmers who grow those crops for export.

Of course, there are other problems associated with ethanol, including concerns about the environmental impact of growing so much corn, debates over how efficient the fuel really is, and logistical problems transporting it.

"The renewable fuel title sets up a new crazy-quilt of boutique biofuels that could strain, indeed could break, the nation's fuel supply system, American Petroleum Institute President Red Cavaney said in a recent statement.

But so far most environmental groups support the bill, saying it contains proper safeguards. And the Department of energy stands by its claim that ethanol does in fact produce more energy than is needed to make it.

The bill now heads to the Senate, where the biofuels provision has wide support, but other measures in the bill could keep it from passing.

2007-12-07 16:27:16

Must Read?

0 %

0 VOTES

Recent Comments

Post Your Own

1 - 7 of 7

7 comments

wslfred 05:43:15 PM Dec 10 2007

Report This!

how about using the bio engineered fuels to produce power? Then to lower the costs stop paying the farmers to not grow corn. more bio fuels will come after furthur investment in the technology. Bringing fuel from tree fiber and other plants..
If the feds wouls stop paying them to not grow then the costs of food and the amount of fuel availiable would improve..
As for the water, pipe in brackish water or salt water and use it in the power plants the byproduct is minerals like sodium and steam that can be condensed into water for growing food/ more corn etc

wslfred 05:42:41 PM Dec 10 2007

Report This!

OINK JOHNSON2 10:23:24 AM Dec 10 2007

Report This!

Our brilliant social engineers in Congress do not have a clue!

While it is debatable whether the production of ethanol consumes more energy than the ethanol ultimately provides (I will leave that to the scientists), there seems to be little doubt that an automobile attains fewer miles per gallon on the typical gasoline/ethanol 90%-10% mix, such as marketed by Citgo.

The 90/10 mix, while having a higher octane, and thus a viable alternative for engines requiring premium gasoline, simply contains less b.t.u.--thus can attain fewer miles per gallon. Do the math, To drive 90% as far, you pay about the same, despite the Government subsidy provided to the ethanol plants (I believe it is something on the order of 52 cents per gallon, but I am not sure).

I have not mentioned the other problems with ethanol--its effect on the price of corn (and other foods depending on corn), its inability to be piped (thus requiring it to be trucked to distributors), its poor performance in very cold weath

Dsemeyn 11:08:22 PM Dec 09 2007

Report This!

Wow - They do not even mention the incredible amount of additional water it will take to grow all of this corn (a limited resource at best - just look at Georgia). Nor do they mention the pollution caused by all of the additional fertizers that will be used. Nor is it mentioned the effect the increase price of corn will have on those starving in poorer countries that rely on imported corn from the USA to live but will no longer be able to afford it.

FOCUS2003WGN 07:25:50 PM Dec 09 2007

Report This!

Like any great change in consumer related products everyone panics when it appears prices will rise. There are many factors that are not taken into consideration such as when the demand goes up then so does production. Many farmers have vacant land or now grow products that demand is less needed. Employment increases to meet the new demands and since America has the most modern techniques, we have the ability to outproduce any country in the world given the fact we also have millions of acres of farm land that has nearly year round weather. I live in California and there is no doubt in my mind that there are still millions of acres that can still be farmed. America must get off dependency in fossil fuels and ethanol is the quickest and easiest route. I for one will not purchase another new auto unless it can operate on ethanol and if enough of Americans feel as I do, the auto industry will get boff thier butts and manufacture them. They have the technology in place.

VDema26408 01:02:48 AM Dec 09 2007

Report This!

The United States Congress,determined to buy the farm vote at any cost has created a special interest economy (corn growers) who will be subsidized to grow corn for conversion to ethanol. From a economic standpoint,this is the most stupid legislation ever.Evidence shows that the production and burning of ethanol will cause severe environmental damage, Rather than legislation to produce ethanol at $1.50/gal the U.S. could import it for no more than 50 cents/gal delivered to the port refineries,however,this will not put any money into the pockets of Congress.

Skysob 08:03:17 AM Dec 08 2007

Report This!

all this is going to do is keep on raising our food prices. im in the food manufacturing business. liquid egg prices have increased 200%, liquid sugar has gone up70%, and soybean oil 70%, this has all happened in one year. all due to bio-fuels.

1 - 7 of 7

7 comments