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  • Bashir Syed
    Foreign Affairs - How Biofuels Could Starve the Poor - C. Ford Runge and Benjamin Senauer Advanced Search CFR.orgA daily guide to the most influential analysis
    Message 1 of 3 , May 26, 2007
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      Foreign Affairs - How Biofuels Could Starve the Poor - C. Ford Runge and Benjamin Senauer
       
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      How Biofuels Could Starve the Poor
      C. Ford Runge and Benjamin Senauer
      From Foreign Affairs, May/June 2007

      PrintEmail to Colleague

      Summary:  Thanks to high oil prices and hefty subsidies, corn-based ethanol is now all the rage in the United States. But it takes so much supply to keep ethanol production going that the price of corn -- and those of other food staples -- is shooting up around the world. To stop this trend, and prevent even more people from going hungry, Washington must conserve more and diversify ethanol's production inputs.

        C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law and Director of the Center for International Food and Agricultural Policy at the University of Minnesota. Benjamin Senauer is Professor of Applied Economics and Co-director of the Food Industry Center at the University of Minnesota.

      Of Related Interest

      Topics:
      Energy, resources, and environment
      U.S. policy and politics

      THE ETHANOL BUBBLE

      In 1974, as the United States was reeling from the oil embargo imposed by the Organization of Petroleum Exporting Countries, Congress took the first of many legislative steps to promote ethanol made from corn as an alternative fuel. On April 18, 1977, amid mounting calls for energy independence, President Jimmy Carter donned his cardigan sweater and appeared on television to tell Americans that balancing energy demands with available domestic resources would be an effort the "moral equivalent of war." The gradual phaseout of lead in the 1970s and 1980s provided an additional boost to the fledgling ethanol industry. (Lead, a toxic substance, is a performance enhancer when added to gasoline, and it was partly replaced by ethanol.) A series of tax breaks and subsidies also helped. In spite of these measures, with each passing year the United States became more dependent on imported petroleum, and ethanol remained marginal at best.

      Now, thanks to a combination of high oil prices and even more generous government subsidies, corn-based ethanol has become the rage. There were 110 ethanol refineries in operation in the United States at the end of 2006, according to the Renewable Fuels Association. Many were being expanded, and another 73 were under construction. When these projects are completed, by the end of 2008, the United States' ethanol production capacity will reach an estimated 11.4 billion gallons per year. In his latest State of the Union address, President George W. Bush called on the country to produce 35 billion gallons of renewable fuel a year by 2017, nearly five times the level currently mandated.

      The push for ethanol and other biofuels has spawned an industry that depends on billions of dollars of taxpayer subsidies, and not only in the United States. In 2005, global ethanol production was 9.66 billion gallons, of which Brazil produced 45.2 percent (from sugar cane) and the United States 44.5 percent (from corn). Global production of biodiesel (most of it in Europe), made from oilseeds, was almost one billion gallons.

      The industry's growth has meant that a larger and larger share of corn production is being used to feed the huge mills that produce ethanol. According to some estimates, ethanol plants will burn up to half of U.S. domestic corn supplies within a few years. Ethanol demand will bring 2007 inventories of corn to their lowest levels since 1995 (a drought year), even though 2006 yielded the third-largest corn crop on record. Iowa may soon become a net corn importer.

      The enormous volume of corn required by the ethanol industry is sending shock waves through the food system. (The United States accounts for some 40 percent of the world's total corn production and over half of all corn exports.) In March 2007, corn futures rose to over $4.38 a bushel, the highest level in ten years. Wheat and rice prices have also surged to decade highs, because even as those grains are increasingly being used as substitutes for corn, farmers are planting more acres with corn and fewer acres with other crops.

      This might sound like nirvana to corn producers, but it is hardly that for consumers, especially in poor developing countries, who will be hit with a double shock if both food prices and oil prices stay high. The World Bank has estimated that in 2001, 2.7 billion people in the world were living on the equivalent of less than $2 a day; to them, even marginal increases in the cost of staple grains could be devastating. Filling the 25-gallon tank of an SUV with pure ethanol requires over 450 pounds of corn -- which contains enough calories to feed one person for a year. By putting pressure on global supplies of edible crops, the surge in ethanol production will translate into higher prices for both processed and staple foods around the world. Biofuels have tied oil and food prices together in ways that could profoundly upset the relationships between food producers, consumers, and nations in the years ahead, with potentially devastating implications for both global poverty and food security.

      THE OIL AND BIOFUEL ECONOMY

      In the United States and other large economies, the ethanol industry is artificially buoyed by government subsidies, minimum production levels, and tax credits. High oil prices over the past few years have made ethanol naturally competitive, but the U.S. government continues to heavily subsidize corn farmers and ethanol producers. Direct corn subsidies equaled $8.9 billion in 2005. Although these payments will fall in 2006 and 2007 because of high corn prices, they may soon be dwarfed by the panoply of tax credits, grants, and government loans included in energy legislation passed in 2005 and in a pending farm bill designed to support ethanol producers. The federal government already grants ethanol blenders a tax allowance of 51 cents per gallon of ethanol they make, and many states pay out additional subsidies.

      Consumption of ethanol in the United States was expected to reach over 6 billion gallons in 2006. (Consumption of biodiesel was expected to be about 250 million gallons.) In 2005, the U.S. government mandated the use of 7.5 billion gallons of biofuels per year by 2012; in early 2007, 37 governors proposed raising that figure to 12 billion gallons by 2010; and last January, President Bush raised it further, to 35 billion gallons by 2017. Six billion gallons of ethanol are needed every year to replace the fuel additive known as MTBE, which is being phased out due to its polluting effects on ground water.




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    • Kevin Conlin
      The bottom line is we shouldn t be burning food for fuel, and that is what corn based ethanol boils down to, no pun intended. ________________________ Kevin
      Message 2 of 3 , May 29, 2007
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        The bottom line is we shouldn’t be burning food for fuel, and that is what corn based ethanol boils down to, no pun intended.

         

         

        ________________________

        Kevin Conlin

        Solarcraft, Inc.

        4007 C Greenbriar

        Stafford, TX 77477-4536

        Local (281) 340-1224

        Toll Free (877) 340-1224

        Fax 281 340 1230

        kconlin@...

        www.solarcraft.net

         

        Please make a note of our new contact information above.

         


        From: Bashir Syed [mailto:bsyed@...]
        Sent: Saturday, May 26, 2007 1:30 PM
        To: Pakistan Affairs
        Subject: [hreg] Emailing: how-biofuels-could-starve-the-poor

         

         

        Go to the Foreign Affairs home page

         

         

         

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        A daily guide to the most influential analysis from the Council on Foreign Relations, publisher of Foreign Affairs.

        INTERVIEW: Concerns That Anti-Musharraf Protests Could Spiral Out of Control
        May 16, 2007

        BACKGROUNDER: What are Iraq's Benchmarks?
        May 15, 2007

        BACKGROUNDER: Healthcare Costs and U.S. Competitiveness
        May 14, 2007



        How to Promote Global HealthHow to Promote Global Health

        What Now?Roundtable on the Iraq Study Group Report

        9/11: A Roundtable9/11:
        A Roundtable

        What to Do in Iraq: RoundtableWhat to Do
        in Iraq: A Roundtable

        Confidence in U.S. Foreign Policy IndexConfidence in U.S. Foreign Policy Index

        Complete list »



        How Biofuels Could Starve the Poor
        C. Ford Runge and Benjamin Senauer
        From Foreign Affairs, May/June 2007

         

        Print

        Email to Colleague

        Summary:  Thanks to high oil prices and hefty subsidies, corn-based ethanol is now all the rage in the United States. But it takes so much supply to keep ethanol production going that the price of corn -- and those of other food staples -- is shooting up around the world. To stop this trend, and prevent even more people from going hungry, Washington must conserve more and diversify ethanol's production inputs.

          C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law and Director of the Center for International Food and Agricultural Policy at the University of Minnesota. Benjamin Senauer is Professor of Applied Economics and Co-director of the Food Industry Center at the University of Minnesota.

      • Susan Modikoane
        I wrote a letter to the USDA regarding this issue. Yesterday, I got a certified letter back from Kenneth J. Baisden, Sr., Chief Program Complaints Division
        Message 3 of 3 , May 30, 2007
        • 0 Attachment
          I wrote a letter to the USDA regarding this issue.   Yesterday, I got a certified letter back from Kenneth J. Baisden, Sr., Chief Program Complaints Division saying that he had forwarded my letter to Mark Rucker. 
           
          I don't know whether to be relieved or to start packing.

          Kevin Conlin <kconlin@...> wrote:
          The bottom line is we shouldn’t be burning food for fuel, and that is what corn based ethanol boils down to, no pun intended.
          ____________ _________ ___
          Kevin Conlin
          Solarcraft, Inc.
          4007 C Greenbriar
          Stafford, TX 77477-4536
          Local (281) 340-1224
          Toll Free (877) 340-1224
          Fax 281 340 1230
          Please make a note of our new contact information above.

          From: Bashir Syed [mailto:bsyed@ worldnet. att.net]
          Sent: Saturday, May 26, 2007 1:30 PM
          To: Pakistan Affairs
          Subject: [hreg] Emailing: how-biofuels- could-starve- the-poor
          Go to the Foreign Affairs home page
          Search Archives


          Home

          The Current Issue

          Background On The News

          Browse By Topic

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          Search



          Subscriber Services
          Newsstand Finder
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          Advertising
          Sponsored Sections
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          Contact Us


          CFR.org

          A daily guide to the most influential analysis from the Council on Foreign Relations, publisher of Foreign Affairs.
          INTERVIEW: Concerns That Anti-Musharraf Protests Could Spiral Out of Control
          May 16, 2007
          BACKGROUNDER: What are Iraq's Benchmarks?
          May 15, 2007
          BACKGROUNDER: Healthcare Costs and U.S. Competitiveness
          May 14, 2007




          How Biofuels Could Starve the Poor
          C. Ford Runge and Benjamin Senauer
          From Foreign Affairs, May/June 2007

          Print
          Email to Colleague
          Summary:  Thanks to high oil prices and hefty subsidies, corn-based ethanol is now all the rage in the United States. But it takes so much supply to keep ethanol production going that the price of corn -- and those of other food staples -- is shooting up around the world. To stop this trend, and prevent even more people from going hungry, Washington must conserve more and diversify ethanol's production inputs.
            C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law and Director of the Center for International Food and Agricultural Policy at the University of Minnesota. Benjamin Senauer is Professor of Applied Economics and Co-director of the Food Industry Center at the University of Minnesota.
          Of Related Interest
          THE ETHANOL BUBBLE
          In 1974, as the United States was reeling from the oil embargo imposed by the Organization of Petroleum Exporting Countries, Congress took the first of many legislative steps to promote ethanol made from corn as an alternative fuel. On April 18, 1977, amid mounting calls for energy independence, President Jimmy Carter donned his cardigan sweater and appeared on television to tell Americans that balancing energy demands with available domestic resources would be an effort the "moral equivalent of war." The gradual phaseout of lead in the 1970s and 1980s provided an additional boost to the fledgling ethanol industry. (Lead, a toxic substance, is a performance enhancer when added to gasoline, and it was partly replaced by ethanol.) A series of tax breaks and subsidies also helped. In spite of these measures, with each passing year the United States became more dependent on imported petroleum, and ethanol remained marginal at best.
          Now, thanks to a combination of high oil prices and even more generous government subsidies, corn-based ethanol has become the rage. There were 110 ethanol refineries in operation in the United States at the end of 2006, according to the Renewable Fuels Association. Many were being expanded, and another 73 were under construction. When these projects are completed, by the end of 2008, the United States' ethanol production capacity will reach an estimated 11.4 billion gallons per year. In his latest State of the Union address, President George W. Bush called on the country to produce 35 billion gallons of renewable fuel a year by 2017, nearly five times the level currently mandated.
          The push for ethanol and other biofuels has spawned an industry that depends on billions of dollars of taxpayer subsidies, and not only in the United States. In 2005, global ethanol production was 9.66 billion gallons, of which Brazil produced 45.2 percent (from sugar cane) and the United States 44.5 percent (from corn). Global production of biodiesel (most of it in Europe), made from oilseeds, was almost one billion gallons.
          The industry's growth has meant that a larger and larger share of corn production is being used to feed the huge mills that produce ethanol. According to some estimates, ethanol plants will burn up to half of U.S. domestic corn supplies within a few years. Ethanol demand will bring 2007 inventories of corn to their lowest levels since 1995 (a drought year), even though 2006 yielded the third-largest corn crop on record. Iowa may soon become a net corn importer.
          The enormous volume of corn required by the ethanol industry is sending shock waves through the food system. (The United States accounts for some 40 percent of the world's total corn production and over half of all corn exports.) In March 2007, corn futures rose to over $4.38 a bushel, the highest level in ten years. Wheat and rice prices have also surged to decade highs, because even as those grains are increasingly being used as substitutes for corn, farmers are planting more acres with corn and fewer acres with other crops.
          This might sound like nirvana to corn producers, but it is hardly that for consumers, especially in poor developing countries, who will be hit with a double shock if both food prices and oil prices stay high. The World Bank has estimated that in 2001, 2.7 billion people in the world were living on the equivalent of less than $2 a day; to them, even marginal increases in the cost of staple grains could be devastating. Filling the 25-gallon tank of an SUV with pure ethanol requires over 450 pounds of corn -- which contains enough calories to feed one person for a year. By putting pressure on global supplies of edible crops, the surge in ethanol production will translate into higher prices for both processed and staple foods around the world. Biofuels have tied oil and food prices together in ways that could profoundly upset the relationships between food producers, consumers, and nations in the years ahead, with potentially devastating implications for both global poverty and food security.
          THE OIL AND BIOFUEL ECONOMY
          In the United States and other large economies, the ethanol industry is artificially buoyed by government subsidies, minimum production levels, and tax credits. High oil prices over the past few years have made ethanol naturally competitive, but the U.S. government continues to heavily subsidize corn farmers and ethanol producers. Direct corn subsidies equaled $8.9 billion in 2005. Although these payments will fall in 2006 and 2007 because of high corn prices, they may soon be dwarfed by the panoply of tax credits, grants, and government loans included in energy legislation passed in 2005 and in a pending farm bill designed to support ethanol producers. The federal government already grants ethanol blenders a tax allowance of 51 cents per gallon of ethanol they make, and many states pay out additional subsidies.
          Consumption of ethanol in the United States was expected to reach over 6 billion gallons in 2006. (Consumption of biodiesel was expected to be about 250 million gallons.) In 2005, the U.S. government mandated the use of 7.5 billion gallons of biofuels per year by 2012; in early 2007, 37 governors proposed raising that figure to 12 billion gallons by 2010; and last January, President Bush raised it further, to 35 billion gallons by 2017. Six billion gallons of ethanol are needed every year to replace the fuel additive known as MTBE, which is being phased out due to its polluting effects on ground water.




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