April 12th 2008

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Articles from this issue:

COVER STORY: Red Star over Canberra

EDITORIAL: Behind the bid for UN Security Council seat

CANBERRA OBSERVED: Kevin Rudd's ideas summit looms

BIOFUELS: Ethanol doesn't have to compete with food

QUARANTINE: AQIS blamed for equine influenza outbreak

FINANCE: Right and wrong way to tackle financial crisis

STRAWS IN THE WIND: The American elections / Rudd's honesty / Conservative blues / NATO's fastidious peace-keeping

TAIWAN: KMT victory paves way for improved China ties

EUROPE: The Dutch disease - how low can you go?

BIOETHICS: Man - a vanishing species?

OPINION: Twilight of the British Raj

AS THE WORLD TURNS: Beijing's one-child policy a demographic powder-keg / A nation of dunces? / Fragility of the affluent society

High cost of foregoing trade deal (letter)

Finlandisation? (letter)

News Weekly's stand on global-warming (letter)

Earth Hour a silly idea (letter)

BOOKS: THE LITERACY WARS: teaching children to read and write in Australia by Ilana Snyder

BOOKS: ORIGINS: An Atlas of Human Migration edited by Russell King

Books promotion page

Ethanol doesn't have to compete with food

by Patrick J. Byrne

News Weekly, April 12, 2008
Headlines claiming that using agricultural land for fuel ethanol production will force up food prices are misleading and hinder the development of a major new Australian industry. Patrick J. Byrne reports.

Despite rising populations, for many decades many developed nations have been reducing the amount of land under cultivation thanks to the dramatic increase in farm productivity. In Europe, this trend is continuing.

Hence, when EU agriculture ministers discussed the issue of growing crops for energy instead of food at the 14th East-West-Agricultural Forum in Berlin in January, it was not surprising that Germany's federal minister of agriculture, Horst Seehofer, commented: "As long as we continue to take areas out of production, the argument about competing areas remains unconvincing." (Irish Farm Journal, January 27, 2008).

He argued that by growing energy crops, European agriculture could eventually free itself from the need for subsidies, and that the creation of this high value-added industry would help to strengthen rural areas.

Land standing idle

The Russian Federation's agriculture minister said Russia has 20 million hectares of productive arable land sitting idle.

A senior Brazilian agriculture ministry official told the conference: "There is no competition in Brazil between the production of foodstuffs and of bio-energy. Forty per cent of our fuel is already obtained from renewable sources and we could easily treble the area devoted to bio-energy production.''

So why are world food prices rising? According to the Christian Science Monitor (March 27, 2008), the Food and Agriculture Organization's (FAO) food price index increased an unprecedented 40 over the year 2007, and is expected to continue rising. The US Department of Agriculture forecast rice stocks to fall to their lowest level since the mid-1970s, and wheat stocks are projected to hit their lowest point since 1946. The reasons include:

• High oil prices have boosted fertiliser production and transport costs.

• Droughts in Australia and Ukraine have helped to drain global food stocks.

• Although rice production is rising, consumption is growing faster.

• Demand for high-quality foods, such as grain-fed beef, pigs and poultry, is steadily rising in developing countries, as these countries' standard of living rises (e.g., 20 million Chinese are migrating to the cities annually, demanding improved diets from their rising wages).

The US dollar has also been falling. Given these factors, only then has biofuel production been a factor, in that it has mopped up excess cereal production and reduced reserve stocks.

According to the Christian Science Monitor: "The FAO expects food prices to stay high for the next three to five years, presenting a challenge for governments trying to keep domestic food prices low in order to keep poor citizens properly fed and avoid mass protests and social unrest ... [Then] the FAO expects food prices to stabilise and eventually drop as farmers plant more grains. That's already starting to happen with wheat and corn. But the next few years could be difficult."

A study by Bruce Scherr, CEO of Informa Economics, a US-based food and agriculture research and consulting firm, has also addressed the "ethanol versus food" issue. He says that, despite the huge amount of US corn being used for ethanol, higher corn prices were found to be only a small element in rising food costs overall. A larger fact was higher energy costs for fuel to transport crops and grow them.

His report pointed out that the "farm value" of commodity raw materials used in foods accounts for 19 per cent of total US food costs, down from 37 per cent in the 1973. Higher costs for labour, packaging, transportation, and energy were a "key driver" behind higher food costs.

While higher corn prices cause lower profit margins for livestock and poultry producers, "the statistical evidence does not support a conclusion that there is a strict 'food-versus-fuel' trade-off" driving consumer food prices higher, the report said. (Christian Science Monitor, January 28, 2008). Corn ethanol also produces distillers' grain, a high-quality stock-feed.

Family budgets

Higher world food prices will hit the extremely poor. However, the current shortage isn't hitting as hard as past shortages, because food is a smaller portion of the family budget as incomes rise worldwide.

Michael Rizzo, senior economist at the American Institute for Economic Research (AIER), says that, in 1970, food represented 19.3 per cent of US household expenditures, but it had shrunk to 12.6 per cent by 2006, (Christian Science Monitor, February 28, 2008).

Similarly, citizens of Nepal and India now spend about 35 to 40 per cent of income on food, down from about 70 to 80 per cent in the early 1970s. (Christian Science Monitor, March 27, 2008).

The claim that biofuels will force up food prices is also short-sighted. First-generation ethanol is made from sugars obtained from sugar-cane or corn. Hundreds of millions of dollars are being invested to develop second-generation cellulose ethanol. This would allow ethanol to come virtually from any plant matter.

This year a pilot plant is expected to trial a recently-discovered marine bacterium, Saccarophagus degradans, or sugar-eater.

Scientists at the University of Maryland have found that it produces the largest known concentration of enzymes that eats just about any carbohydrate. According to the university's Jonathan Dinman, associate professor of cell biology, "It eats what nobody else will eat - cornstalks, leftover chaff from hay or whatever - and can turn that into ethanol." Over the past year they have bought down production costs 20-fold. (Washington Post, March 10, 2008).

Another pilot plant is being built by the US Bell Bio-Energy company that has managed to genetically manipulate naturally occurring bacteria to convert biomass into oil and gasoline.

According to the company's CEO, J.C. Bell, "With minor changes in the agricultural and forestry products, we could create two to two-and-a-half billion tons of biomass a year, and you're looking at 5 billion barrels of oil per year. That would be about two-thirds of what we use now." (WorldNetDaily, March 19, 2008).

Australia urgently needs to produce more liquid fuels. In a recent speech, the federal Minister for Resources and Energy, Martin Ferguson, warned that it was vitally important to find new oil resources, because "Australia could face a trade deficit in petroleum products of more than $25 billion by 2015 and domestic oil production could be as little as 20 per cent of our needs compared with 80 per cent in the 1990s".

In fact, Australia's net trade deficit on oil could be much higher if the value of the Australian dollar falls and the price of oil rises. This would cause an unsustainable blow-out of Australia's foreign debt.

Yet, Australia has the unique opportunity to create a major ethanol and wider biofuels industries. An ethanol industry would be a huge boost to the flagging sugar-cane industry. It would not substantially affect the price of food, as sugar is only a tiny component of food costs.

North Queensland's rivers have annual flows about 9.7 times the Murray-Darling Basin flow, while the west of the state has huge, highly fertile, black-soil plains. Put together with western Queensland's sunshine, this region has the potential to create a major biofuels industry and not compete with food production.

- Patrick J. Byrne is national vice-president of the National Civic Council.

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