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Food versus fuel: the real story

In 2008, the food versus fuel debate raged to new heights. Corn farmers around the world were blamed for profiteering while the rest of the world suffered unprecedented food prices increases, as well as food shortage issues in some regions.

November 14, 2008  By Treena Hein

The real causes of the global food crisis B and where biofuel crops fit into the picture. 

Concerns about prices for corn being driven by energy demands have been replaced with a better understanding of the role of speculators.  

In 2008, the food versus fuel debate raged to new heights. Corn farmers around the world were blamed for profiteering while the rest of the world suffered unprecedented food prices increases, as well as food shortage issues in some regions.
Dr. Gordon Surgeoner, president of Ontario Agri-Food Technologies, based in Guelph, Ont., is a bit weary of reading and hearing unfounded statements in the media about the role biofuels plays in the burgeoning food crisis. “The debate is healthy, but it should be based on valid information. Corn prices have dropped approximately 30 percent since the highs of July 2008, and the US is still producing about seven billion gallons of ethanol per year. The roles of high oil prices and speculators are now obvious.”
In April 2008, many political and academic leaders weighed in on the debate. Surgeoner says British Prime Minister Gordon Brown called for an “investigation of whether the conversion of agricultural land from food to biofuel production is contributing to rising food prices.” In the same month, Time magazine stated, “Politicians and Big Business are pushing biofuels like corn-based ethanol as alternatives to oil. All they’re really doing is driving up food prices and making global warming worse – and you’re paying for it.”

Surgeoner also points to the comments made during April 2008 by Dr. Ian Lee, Masters of Business Administration (MBA) director of the Sprott School of Business at Carleton University. Commenting to The Canadian Press about the federal government’s investment in production of biofuels made from agricultural products traditionally used as part of the food chain, Lee said “It’s got to go down as one of the dumbest decisions ever.”


Why food is costing more
Surgeoner says the escalating world food prices are due to a complex set of factors that have little to do with growing crops to produce fuel. “The cost of transportation and growing food, pesticides, running machinery, fertilizer, seed, has gone up mainly because of higher fuel prices, which makes food more expensive,” he says. “Fuel costs have also increased what it costs to process and store food.”
Oil prices have escalated primarily because of increased demand from developing nations. In addition, as stock markets plummet in concert with the value of mortgage-based assets, investors and speculators have abandoned stocks, and sought out other opportunities like oil, precious metals, and grains and oilseeds. These commodities therefore have experienced a price increase, like anything in demand would. Surgeoner notes that, in addition, “the public failed to recognize that the seven billion gallons of ethanol produced in the US reduced gas prices by four to 10 cents per litre.” He says people should also remember that the technology continues to develop, with higher corn yields and more ethanol being produced per bushel.
The demand for oil, in turn, has exac-erbated food price escalation, “which has greatly contributed to inflationary pressures in unstable nations already exhibiting unsustainable food policies,” notes Surgeoner. “Governments of countries such as Indonesia, Bangladesh, Nigeria and the Philippines, as well as those of Egypt, Vietnam and Venezuela, have imposed export restrictions and bans so that they are seen as taking action in the face of rising rice and grain prices, which only encourages hoarding and stockpiling rather than expanded production.”
In their quest for political survival, these governments try to keep their citizens calm and hang on to power
by subsidizing food prices, keeping them artificially low, which discourages farmers in these regions from expanding production. These policies do not work, says Surgeoner. Farmers have tried to ship their crops across borders, and riots have occurred as a result of food shortages in many of these countries.
At the same time, demand for food, and for higher quality food, is constantly rising. “Each second, we add three people to planet Earth,” says Surgeoner. “Current world population is 6.8 billion and increasing by 80 million per year. Every two seconds, we also add approximately three people to the middle class, which amounts to approximately 50 million new middle-class citizens per year. These people have increased demand for more, and better, foods.” 

Since 2000, world soybean acreage has increased by 21 percent, which again counters inaccurate information about corn markets.  

Analyzing the arguments
Surgeoner identifies two main arguments that are used to blame increased biofuel production for high food prices. “Some argue that the price of oilseed and food grains like wheat and rice is rising because acreage planted for corn is expanding at the expense of these crops, and there is less of them to fill demand,” he says. However, data from the Foreign Agricultural Service of the US Department of Agriculture shows that while world corn acreage has increased 15 percent since 2000, world barley acreage increased four percent in that same time frame. World oilseed acreage has risen by 11 percent and world soybean acreage is up by 21 percent. Wheat has stayed steady while world rice acreage is now at a record high of 381 million acres (154.3 million hectares), up 1.7 per cent since 2000. “So most crop acreages are increasing, not just corn,” says Surgeoner. “In addition, rice is a staple consumed by half of the world’s people and rice and corn do not compete for the same acreage.”
 There is also the argument that corn is being diverted to make ethanol, away from using corn as livestock feed, which has caused beef and pork prices to rise. “However, when corn is used to make ethanol,” says Surgeoner, “all that is actually happening is that instead of feeding the whole corn kernel, we are merely feeding one third of it as dry distillers grains with solubles (DDGs), a 30 percent protein feed byproduct, and producing carbon dioxide to enhance greenhouse production.”

Surgeoner concludes: “The arguments that biofuels cause food inflation are overstated. Government investments in biofuels are not ‘wrong-headed,’ as Dr. Ian Lee asserts. They have not been major factors in beef or pork price increases in Canada, have had little impact on world food production or supplies, have not distorted world acreages planted to food grains or oilseeds, and have not caused world food price inflation.”
Instead, he says, “World food price inflation has been caused by oil price escalation and speculation which has put inflationary pressure especially on those unstable nations already at risk because of their unsustainable food subsidy policies.” Surgeoner says solutions to the food crisis include educating women in developing countries about birth control, investing in food productivity, increasing the amount of freely traded food and condemning corrupt leaders. He says, “We should also reduce our individual ecological footprints and find alternatives to fossil fuels to minimize climate change.”

Commenting on the Canadian far-mer’s perspective, Steve Kell, a grain merchant at Parrish & Heimbecker, says, “Farmers have been told, ‘If it’s not going for food, you can’t sell it,’ but it’s not good to have just one market for your product. Farmers deserve to always have a market for their products. There are only a few markets for flour, only a few flour mills, but there are many ethanol companies and more are springing up. There are new players and that makes the market a more stable place.”


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