The conversion of corn to ethanol has contributed to a doubling in global food prices since 2005, according to a report by the New England Complex Systems Institute (NECSI).
In a presentation at The Heritage Foundation, Dr. Yaneer Bar-Yam elaborated upon earlier research done by NECSI demonstrating a link between global food price increases associated with the corn-to-ethanol conversion and violence in the Middle East and North Africa known as the “Arab Spring” causing “unrest and upheaval.”
“[Corn] is a huge part of the global food system,” Bar-Yam said. Corn forms the basis for everything from high fructose corn syrup and cereal to feed for livestock.
Source: NECSI, “The Food Crises and Political Instability in North Africa and the Middle East.”
“Why did the revolutions happen?… [W]hy did it happen now?” Bar-Yam asked, pointing to the beginning of turmoil in the region at the end of 2010. His research team submitted a report to the federal government demonstrating the connection between higher food prices and social unrest and political instability just four days before the self-immolation of Mohammed Bouazizi in Tunisia in December 2010.
That report is indicated by the blue dotted line in the chart above.
Driving the food crisis, according to Bar-Yam, is legislation mandating ever-increasing amounts of ethanol production and consumption—the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. The mandate caps corn-ethanol production at 15 billion gallons per year.
“Ethanol is corn. Corn is food. When you’re pulling into the gas station and you’re filling your tank of gas, 10 percent of what you’re putting into the tank is food. It could be eaten by people instead,” said Bar-Yam.
“Today, the amount of corn that is being used is about 50 percent of all the corn that the U.S. produces,” Bar-Yam continued. That amount is up from 15 percent before 2005. As a major exporter of corn globally, the consumption of food as fuel drives food costs higher by reducing it as a source of food, Bar-Yam explained.
His findings show that the amount of corn used to produce one gallon of ethanol fuel would feed one person for a day, and the U.S. diversion of corn for ethanol could feed as many as 570 million people worldwide annually.
Additional benefits, such as increasing energy yields, are virtually a wash. “The same amount of fossil fuel energy goes into making a gallon of ethanol as can be obtained by using that ethanol in a car,” the report found. Those energy inputs include fossil fuels for the production and transportation of fertilizers and pesticides, farmland irrigation, and the cultivation and delivery of the corn to plants for conversion into the final ethanol gas.
Bar-Yam also argued that in addition to the $20 billion in ethanol subsidies received over the past three decades by corn producers, consumers pay a premium for the fuel blend. While the cost per gallon is lower, the cost per mile is higher—“as if the gasoline is watered down.”
“[E]very gallon of gasoline with ethanol bought is an extra subsidy from consumers to the ethanol producers,” the report said.
Bar-Yam’s conclusion is not alone on ethanol’s contribution to world food price spikes that threaten political upheaval and even starvation in developing countries. The New York Times examined the situation in Guatemala in January 2013:
Recent laws in the United States and Europe that mandate the increasing use of biofuel in cars have had far-flung ripple effects, economists say, as land once devoted to growing food for humans is now sometimes more profitably used for churning out vehicle fuel.
In a globalized world, the expansion of the biofuels industry has contributed to spikes in food prices and a shortage of land for food-based agriculture in poor corners of Asia, Africa and Latin America because the raw material is grown wherever it is cheapest.
Whether we use corn for food or fuel should be for the free market to determine. Corn producers should be able to seek the most profitable use for their product, but that process should not be determined by mandates, targeted tax breaks, or other subsidies that incentivize corn-based ethanol as a fuel source.
The Heritage Foundation’s research on the renewable fuel standard and the impact of ethanol on the price of corn demonstrates that even small changes in corn commodity pricing can have a large effect on global prices due to shifts from food consumption to ethanol conversion. David Kreutzer puts that price increase between 8 and 68 percent:
Ethanol production in the U.S. consumes a significant quantity of corn and has a large impact on corn prices. We believe that ethanol production increases the world corn price by up to 68 percent. Since some corn would likely go to ethanol production with or without a federal mandate, the mandate’s price impact is likely less than 68 percent. One estimate puts the price impact as low as 8 percent.
However, the direction of the impact is clear: The ethanol mandate increases corn prices and the prices of food and products that use corn as an input. Since the impact of the mandate is bad in any case, it is not redeemed by arguing that the bad impact might be a small bad impact.