Energy
Tug of war between food and green fuel
October 12, 2005
By Christine Stebbins
Chicago - The multibillion-dollar US grain sector faces a major challenge as soaring oil prices boost demand for "green" fuels, setting up a competitive tussle between energy refiners and traditional users of grain as food.
More and more, crops such as maize and soya beans - now primarily used as animal feed and ingredients in hundreds of food products - will be used to make ethanol and biodiesel in coming years. This could have a ripple effect in the form of higher food prices, some economists say.
"There are already some asking questions: should we be using basic foods when you have a hungry world?" says economist Chris Hurt at Purdue University.
"When you start using food for fuel, it has some implications for food prices over time.
"There are going to be winners and losers out there. It's a pretty dramatic event for the grain industry," he adds.
For 2005, the US agriculture department estimates that 2.54 million tons of maize - 11 percent of this year's US crop - will be used to produce ethanol, an alcohol distilled from maize and used as a petroleum additive or substitute.
Interest in biofuels such as ethanol, which can also be made from sugar, and biodiesel, now made mostly from soya beans, got a big boost in the US after petrol prices topped $3 a gallon (R5.15 a litre) in many parts of the country last month.
Oil prices, already high due in large part to China's growing demand for energy, spiked even higher as hurricanes Katrina and Rita shuttered US refineries on the Gulf coast.
Such home-grown fuels have the benefits of being renewable, running cleaner than petroleum fuels, and potentially reducing US dependence on foreign oil.
Boosted by the latest US government energy bill, US production of ethanol and biodiesel is projected to climb to 28.4 billion litres by 2012.
Midwest economists estimate that would equate to between 5 percent and 7 percent of total petrol consumption by then, about double the 2005 projected level.
Part of the jump is tied to a government rebate of 26c a litre on biodiesel that came into effect this year.
But US cities and states are also rushing to boost the use of green fuels. City buses from San Francisco to Cincinnati now fill up with biodiesel (which runs in any diesel engine) and emit exhaust fumes that smell like popcorn.
Last week, Minnesota became the first state to require that all diesel fuel sold contained at least 2 percent biodiesel.
The big winners in the home-grown fuel market will be US grain farmers, who stand to cash in on the run for their crops.
But it will be a different story for US livestock producers, who are likely to see higher prices for smaller available supplies of grain for feed.
This would affect every producer in the billion-dollar livestock markets, from the beef producers on the Plains to the hog producers of the Midwest, the poultry farms of the southeast and the dairy factory farms of California.
Grain analysts also foresee smaller maize and soya bean export volume and income in the coming years. Right now 11 percent of the US maize crop is used for ethanol production, compared with 15 percent that is exported to livestock producers in Japan and South Korea.
"We are using increasing amounts of corn for ethanol," says Pat Westhoff, an economist with the Food and Agricultural Policy Institute.
"By 2009, we [expect to] have maize exports marginally lower than maize use for ethanol."
That demand outlook has prompted global agribusiness firms and top US exporters, such as Cargill and Archer Daniels Midland, to take an active development role in biofuels.
Both are already top suppliers of renewable fuels, and they are expanding with new ethanol and biodiesel plants dotted across the Midwest. Recently Cargill announced a joint venture to build ethanol plants in Indiana, Nebraska and Ohio.
Archer Daniels Midland said late in September that it would construct its first wholly owned US biodiesel facility in North Dakota.
Even with a demand spike in renewable fuels, they are a very small slice of the energy pie: still just 3 percent of the total US petroleum market. But some backers say green fuels could make up 25 percent of the total petroleum market by 2025.
For the food sector, part of the void left by energy producers siphoning off maize and soya beans could be filled by higher-yielding crops or varieties bred for higher energy value.
Research laboratories across the country are looking at other sources of feedstock - everything from wood pulp and exotic grasses to potatoes - to turn into green fuels.
"There are a lot of 'ifs' in the equation, but with the up-and-coming technology ... the advances in conservation and efficiency of the vehicles, they could potentially play a very significant role in our fuel mix," says Suzanne Hunt, a biofuel manager with Worldwatch, an environmental think-tank.
"There is a broad spectrum of people in this country who are starting to realise that it's in all of our best interest to transition away from fossil fuel dependence towards these renewable energy sources."
- Reuters
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