Food versus fuel and fiber

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In late 2006 and 2007 a rapid rise in the price of corn (maize) resulted in attention to the question of whether production of biofuels will conflict with production of food. News reports from Mexico speculated that the increase in fuel production in the United States was to blame for a sharp rise in the price of tortillas. [1] By 2008 the focus of attention had moved to palm oil, a product commonly used for food, especially in the third world, which is increasingly being converted to biofuel, but is in rather inelastic supply, eight years being required from the planting of new plantations to production. This has resulted in dramatic prices rises and spot shortages.[2] In countries where half or more of the typical budget goes for food, the doubling of commodities prices by the Spring of 2008 created a serious crisis including riots in Egypt and Haiti. There will be a lag of some years before agricultural production can be expanded to meet demand. There were calls to abandon biofuel productions.[3][4] By mid-April, 2008 the food crisis was overshadowing the global credit crisis with some characterizing growing fuel rather than food as a "crime against humanity".[5] By the summer of 2008, a major conference on the food crisis was convened by the United Nations[6] and investors were beginning to take an interest in agriculture, but with a focus on consolidation of land holdings.[7]

Background

Corn prices, which historically have been depressed with corn in the United States in surplus, rose from under $2 per bushel in the summer and fall of 2006 to nearly $4 in December, 2006 and January, 2007 as many ethanol plants came on-line and more were planned in the American Midwest. A market report from Mexico dated February 2, 2007 reported that the price of white corn, used in tortillas, had risen 52% since December and doubled over the past year. By April, 2008 the current corn futures price had risen to slightly above $6.00, with a slight drop anticipated for future deliveries.[8]

Mexico has a history of subsidizing the price of tortillas and of supporting corn prices, but two successive conservative governments have resulted in the dismantlement of that structure. Recently the price has risen 40% but is now capped at 8.5 pesos per kilogram due to negotiation between the government and the largest producers. The market in corn in Mexico may be less than free with preferential sales by the government to favored producers and quotas on duty free imports. The recent crisis has resulted in increase of the quotas. Mexico is the 4th largest corn producer in the world with an annual production of 22 million tons of corn a year. It imports 7 to 8 tons per year of yellow corn for livestock feed. White corn has historically been produced by local farmers but that production may have been disrupted due to depression of prices by low priced imports under NAFTA with many farmworkers emigrating to the United States. [9] [10]

Rice v. wine

Production of fuel is not the only alternative use of agricultural inputs. In Australia land used historically to produce rice has been diverted to production of wine grapes, a crop which takes less water and is considerably more profitable, at least with rice at low prices.[11] Another obvious use is feed for animals.

Analysis

There appears to be no shortage of corn on the world market. It initially appeared that prices were unlikely, even with speculative pressure. to rise significantly above $4 a bushel, this has proved inaccurate as the price rose to $6 in 2008 despite a substantial increase in the United States of acres planted to corn. Only a minority of vehicles are flexible-fuel vehicles which can use 85% ethanol as fuel. In the United States there are very very few fueling facilities for 85% alcohol fuel.

By April, 2007 US farmers planned to plant corn on 90.5 million acres in 2007, a 12% increase in corn, a 10% reduction in acres planted to soybeans with decreases also in wheat and cotton. [12] Corn futures had fallen below $4.00 by April, 2007 after a 3 day collapse in the futures market.[13]

Due to the projected glut in production, attempts are being made by ethanol producers to promote legislation to increase the percentage of ethanol blended into fuel. Currently 10%, a raise to 20 or even 30 percentage is proposed. This level of ethanol will[14] increase corrosion, shorten engine life and result in increased air pollution.[15]

Infrastructure

By September, 2007, it had become obvious that infrastructure to distribute ethanol had not kept pace with rapidly increasing production capacity.[16] Ethanol, it turns out, cannot be distributed by pipeline, but requires dedicated tanker trucks or rail cars, which are backordered. Additionally, rail spurs at the plants are often inadequate, as are pumping facilities. Combined with the continuing lack of vehicles which can use the fuel and locations where it can be purchased, these problems have resulting in decreasing prices for the commodity, especially in producing regions.[17]

Cellulosic ethanol

Production costs for cellulosic ethanol in 2007 remained above $2.00 a gallon with ethanol from corn being produced at a cost of $1.50 a gallon with corn at its then current price of about $4 a bushel being half the cost. [18] (It is usually assumed the feedstocks, generally woody agricultural waste, such as cornstocks, for cellulosic ethanol would be free, a rather questionable notion [19] ). Cellulose, like starch, can be broken down into its constituent sugars by the action of appropriate enzymes. These remain expensive, but intensive research continues with substantial private and governmental support. [20]

Long term considerations

Ethanol is produced in Brazil from sugar cane, the alternative product being sugar. Corn, the favored feedstock in the United States, is generally not consumed directly but fed to livestock. A world price of $6.00 a bushel for corn, if ethanol can be produced profitably at that price, would seem to be sufficient incentive for enough increased production to meet all projected needs. It is probable that the long period of depressed prices for corn has retarded production.

The US has a long history of import restrictions on foreign sugar (much more efficient to raise in tropical climates) and, now, foreign (Brazilian) ethanol. If such restrictions were eased, full exposure of US markets to global factors would substantially change the US picture.

The high price of petroleum for the foreseeable future

Fatih Birol, chief economist of the International Energy Agency expressed his opinion in October, 2007 that oil prices will remain high for the foreseeable future due to rapid increases in demand from the huge developing economies of India and China.[21] According to informed observers, OPEC, meeting in early December, 2007, seemed to desire a high but stable price that would deliver substantial needed income to the oil producing states, but avoid prices so high that they would negatively impact the economies of the oil consuming nations. A range of 70-80 dollars a barrel was suggested by some analysts to be OPEC's goal.[22] Analysts point out that major oil exporting countries are rapidly developing and are using more oil domestically. Particularly significant are Indonesia, which no longer exports oil, Mexico and Iran, where projected demand will exceed production in about 5 years, and Russia, whose domestic economy is growing rapidly.[23]

The matter of fertilizer

Expanded agricultural production is dependent on expanded fertilizer production which is itself dependent on natural gas as an input. The inflated prices for food which appeared in the winter of 2007-2008 was accompanied by a corresponding rise in the price of fertilizer and questions about the fertilizer industry's ability to supply sufficient fertilizer to further increase agricultural production.[24]

Global considerations

A sustained rise in the price of corn should take pressure off the global market historically caused by surplus supplies in the United States, substantially improving the situation for corn growers in less developed nations. This would seem to be a happy consequence, provided consumers in those countries are able to feed themselves. Sustained, wide-spread use of agricultural resources for production of fuel would result in a world-wide rise in the price of all agricultural products and inputs, which have been depressed throughout the 20th century. This could lead to both rural prosperity or hunger depending on the local situation. Increased returns from agriculture would provide incentive and resources for the development of rural infrastructure. In the Congo, for example, the rail, road, and water transportation system is so dilapidated and poorly managed that it is difficult to get agricultural products to market.[25] Increased agricultural prices could provide some of the funds to support repair and maintenance.

Agricultural development

Rather than high prices bringing prosperity to the smallholders in undeveloped countries a pattern is developing of small farmers being displaced in favor of commercial farming projects with the displaced being offered food aid.[26] Large amounts of land are being purchased or leased in undeveloped countries by developed nations for agricultural use.[27] In some cases large tracts of land, sometimes including lands cultivated by indigenous farmers, are being transfered by central governments to land speculators.[28] The World Bank supports such investments provided economic benefits for rural populations are included.[29]

Food aid

By September, 2007 it was reported that increased commodity prices had reduced the amount of food American aid programs could buy. This was aggravated by a steep, but probably ephemeral rise, in the price of wheat to record levels. Support for American food aid programs is to a certain extent based on the need to market surplus crops. With the disappearance of surpluses and rising prices it makes little sense to buy scarce food here when it could be bought locally, but this is opposed by agribusiness interests and American shippers.[30][31]

Brazil

Brazil, with 175 million acres planted to crops now, may have the capacity to double its planted acreage by expanding cultivation of the Cerrado, a vast tropical savanna. This would result in a capacity comparable to the United States. While the United States remains the greatest producer of soybeans, Brazil is the largest exporter with increasing exports to China. However, infrastructure is inadequate with farmers having to truck soybeans over rutted roads for a thousand miles to reach inadequate port facilities where ships may wait a month for a berth. Investors have bought up huge tracts of land, dominating production. The governor of Mato Grosso, Blairo Maggi, of the Maggi Group, is the largest soybean grower in the world, with 400,000 acres. The US multinationals, Cargill and Archer Daniels Midland have a substantial involvement in the soybean trade. Caught between the need for financing from the multinationals and inadequate infrastructure for marketing of their crops, many farmers, while producing a large volume of soybeans, are not showing corresponding profits. Costs in January, 2007 to move a ton of soybeans to a seaport for export were $88 in Brazil versus $15 in the United States. [32] [33]

The cerrado

The cerrado was thought worthless for agriculture until researchers at Brazil's Brazil’s agricultural and livestock research agency, Embrapa, discovered that it could be made fertile by appropriate additions of phosphorus and lime. Researchers also developed tropical varieties of soybeans, until then a temperate crop.[34]

Nowadays the "cerrado" region contributes with more than 70% of the beef cattle production in the country ("Pecuária de Corte no Brasil Central"; Beef Cattle Production in Central Brazil, Corrêa, 1989), and thanks to irrigation and soil correcting techniques it is also an important production centre of grains, mainly soya, beans, maize and rice. Great extensions of "cerrado" are also utilised in the production of cellulose pulp for the paper industry, with the cultivation of several species of Eucalyptos and Pinus, but still as a secondary activity.

Nobel Peace Prize laureate Norman Borlaug has described the Cerrado as one of Earth's last remaining arable frontiers for the expansion of agriculture. The 2006 World Food Prize was awarded to former Brazilian Minister of Agriculture Alysson Paolinelli, soil scientist Edson Lobato (also of Brazil), and American soil scientist A. Colin McClung for their leadership in soil science and policy implementation that opened the Cerrado to agricultural and food production.[35]

Africa

It is probable the scientific techniques used in Brazil could be extended to other tropical and sub-tropical savannas, particularly in Africa. Corn and cotton are potential crops. Subsidized fertilizer and quality seed turned agriculture in Malawi around quickly with corn production increasing to 3.4 billion metric tons in 2007 from 1.2 billion in 2005.[36] The Bill and Melinda Gates Foundation intends to invest heavily in improving agricultural opportunities for farmers in Africa, focusing on poor women.[37][38]

External links and further reading

References

  1. "Tortilla crisis hits the poor as clean fuel drives up corn price" article by James Hider The Times, February 3, 2007
  2. "An Oil Quandary: Costly Fuel, Costly Calories" article by Keith Bradsher in The New York Times January 19, 2008
  3. "The World Food Crisis" Editorial in The New York Times April 10, 2008
  4. "How Ethanol Fuels the Food Crisis" update by C. Ford Runge and Benjamin Senauer From foreignaffairs.org - author update, May 28, 2008
  5. "Finance Ministers Emphasize Food Crisis Over Credit Crisis" article by Steven R. Weisman in The New York Times April 14, 2008
  6. "Leaders Speak of Their Own Issues at a Conference Addressing Food Shortages" article by Elizabeth Rosenthal and Andrew Martin in [The New York Times]] June 5, 2008
  7. "Food Is Gold, So Billions Invested in Farming" article by Diana B. Hendriques in The New York Times: June 5, 2008
  8. "DJ Mexico Cash Grains: Some Yellow Corn Trade In Slow Market" 02/02/2007, Dow Jones
  9. "The Costs of Rising Tortilla Prices in Mexico", Enrique C. Ochoa, Portside, January 31, 2007
  10. "Mexico Opens Corn Quotas to Ease Tortilla Prices", Reuters, 5/01/2007
  11. "A Drought in Australia, a Global Shortage of Rice" article by Keith Bradsher in The New York Times April 17, 2008
  12. "Cotton acreage expected to decline across the South this season as corn planting increases", article by Becky Bohrer, Associated Press, 12:21 a.m. April 9, 2007, retrieved from SignonSanDiego.com, April 11, 2007
  13. "Market pros have a go at corn as price takes a hit" article in economictimes.indiatimes.com April 10, 2007, retrieved April 11, 2007 from economictimes.indiatimes.com
  14. Conclusion by Fred Bauder
  15. "Ethanol Lobbyists Begin Drive to Use Richer Blend" article by Matthew L. Wald in The New York Times December 6, 2007
  16. "Ethanol Transportation Backgrounder: Expansion of U.S. Corn-based Ethanol from the Agricultural Transportation Perspective" US Department of Agriculture, September 17, 2007
  17. "Ethanol’s Boom Stalling as Glut Depresses Price" article by Clifford Krauss in the New York Times, September 30, 2007
  18. "A Renewed Push for Ethanol, Without the Corn" article by Matthew L. Wald and Alexei Barrionuevo in the New York Times, April 17, 2007
  19. Personal observation by Fred Bauder
  20. "A Renewed Push for Ethanol, Without the Corn" article by Matthew L. Wald and Alexei Barrionuevo in the New York Times, April 17, 2007
  21. "IEA says oil prices will stay 'very high,' threatening global growth" article by James Kanter in the International Herald Tribune October 31, 2007
  22. "OPEC Finds Price Range to Live With" A "news analysis" piece by Jad Mouawad in The New York Times December 6, 2007
  23. "Oil-Rich Nations Use More Energy, Cutting Exports" news analysis by Clifford Krauss in The New York Times December 9, 2007
  24. "Shortages Threaten Farmers’ Key Tool: Fertilizer" article by Keith Bradsher and Andrew Martain in The New York Times April 30, 2008
  25. "Congo by Rail: Filthy, Crowded and Dangerous" article by Will Connors in the New York Times September 4, 2007
  26. "Darfur Withers as Sudan Sells Food" article by Jeffrey Gettleman in The New York Times August 9, 2008 “Smallholder food production goes down, commercial food production goes up, and food relief serves as a subsidy to this transformation, keeping the displaced alive,” Alex de Waal, a Sudan scholar at the Social Science Research Council in New York
  27. "Land Grab or Development Opportunity? Agricultural Investments and International Land Deals in Africa"
  28. "World Bank warns on ‘farmland grab’ trend" article by Javier Bas in The Financial Times July 27 2010 21:02 | Last updated: July 27 2010 21:02
  29. "World Bank backs investment in global farmland" article by Javier Blas in The Financial Times September 7 2010, accessed September 7, 2010
  30. "As Prices Soar, U.S. Food Aid Buys Less" article by Celia W. Dugger in the New York Times September 29, 2007
  31. "Kenyan Farmers’ Fate Caught Up in U.S. Aid Rules" article by Celia W. Dugger in the New York Times July 31, 2007
  32. "To Fortify China, Soybean Harvest Grows in Brazil" article by Alexei Barrionuevo, New York Times, April 6, 2007
  33. "A Bumpy Ride on a Brazilian Highway, and Long Waits at Either End" article by Joshua Scheyer and Alexei Barrionuevo, New York Times, April 6, 2007
  34. ""Scientists Are Making Brazil’s Savannah Bloom" article by Larry Rohter in the New York Times October 2, 2007
  35. material from the Wikipedia article "Cerrado"
  36. "Ending Famine, Simply by Ignoring the Experts" article by Celia W. Dugger in The New York Times December 2, 2007
  37. "Gates Foundation to Give $306 Million to Assist Poor Farmers" article by Celia W. Dugger in The New York Times January 25, 2008
  38. "A Green Revolution for Africa?" article by David Rieff in The New York Times Magazine October 10, 2008