February 11, 2008 3:33 PM PST

Don't blame high food prices completely on ethanol

Posted by Michael Kanellos

It's become a staple of conventional wisdom that increased ethanol production has caused food prices worldwide to skyrocket.

Unfortunately, many experts and crop data say that's not a complete answer. Granted, production of corn ethanol has surged in the U.S. and has boosted pricing pressure. Lester Brown of the Earth Policy Institute noted in a recent column on Cleantech.com that demand for grain by ethanol distillers jumped from 54 million tons in 2006 to 81 million tons in 2007. That jump of 27 million tons effectively doubled the annual growth rate. Brown said that ethanol creates instability in the food pricing market.

The annual growth rate, however, only represents a small fraction of the grain actually produced. In 2006, world production of grain came to 1.992 billion tons of grain while consumption came to 2.043 billion tons. In 2007, production rose to 2.075 billion tons while consumption went to 2.098 billion tons. Thus, ethanol only represents about 4 percent of worldwide grain consumption.

Instead, crop prices have been rising because of an imbalance of supply and demand, Steve Koonin, chief scientist at BP and a former faculty member at Caltech, said at the recent Clean Tech Investor Summit. The emerging world is consuming more food, and the imbalance has been exacerbated in recent years because of crop failures in the Ukraine and the Midwest.

"Energy is only the most immediate manifestation of a larger problem," which is that other parts of the world are and will demand higher standards of living, he said. Nations and populations will compete over energy, water, food, land, and precious metals, he added.

"This will be the defining challenge of the next couple of decades," he said.

John Podesta, CEO of the think tank Center of American Progress, pointed out that the cost of fuel has exacerbated the situation. Two-thirds of the cost of raising and transporting fuel can be traced to fossil fuels. Thus, when gas goes up, so do Crispy Wheats N' Raisins. China is also experiencing crop yield difficulties.

However, if there is one thing the majority of energy experts agree on, it's that corn ethanol isn't an attractive long-term replacement for gasoline.

"Corn ethanol is a scam," said Wal van Lierop, CEO of Chrysalix Energy Venture Capital.