ENERGY: by Patrick J. ByrneNews Weekly
Will Windsor and Abbott deliver mandated ethanol?
, May 28, 2011
Will Tony Abbott be able to rally the full support of the Liberal Party, and will Tony Windsor work with the Coalition, to introduce a federal mandate for sugar-cane-based ethanol in Australian fuel?
Liberal policy is to mandate a percentage of ethanol in fuel, a vital first incentive to putting in place a viable Australian industry to turn sugar-cane into biofuel.
However, Abbott faces resistance from economic rationalists in his party. Any bill to introduce mandated ethanol will also require support from NSW rural independent MP, Tony Windsor. He supports ethanol, but does not support the Coalition.
Deregulation and bad seasons are destroying Queensland and northern New South Wales’s sugar-cane industry.
According to an industry leader, land devoted to cane-growing has fallen by about 25 per cent. Many farms are up for sale, with few buyers.
Since deregulation of the industry started over a decade ago, five of Australia’s 29 sugar-mills have closed.
In contrast, Brazil has been expanding its sugar-cane output by the equivalent of one Australian sugar-cane industry per year, on the back of the ethanol industry.
The issue is as politically volatile as ethanol is flammable.
Eight federal electorates along the Queensland coast and in northern NSW — collectively known as the sugar-belt seats — could determine the next election.
The depressed state of sugar-cane leaves these seats open to whichever party can assure voters a future for the industry. Mandating ethanol would go a long way towards securing those seats.
In northern NSW, Labor holds two seats significantly dependent on sugar. Both are marginal and both have alternated between Labor and the National Party since the 1980s. Richmond requires a 3.5 per cent swing, and Page 2.1 per cent.
Three marginal Queensland sugar-belt seats are held by the Coalition. Each requires only a small swing to be lost — Dawson 1.2 per cent, Leichhardt 2.3 and Forde 0.8.
In March, President Obama set a target of cutting U.S. oil imports by a third by 2025 and building four new biofuel/ethanol refineries over the next two years. He has also instructed federal agencies to purchase only alternative-fuel vehicles by 2015.
Both Obama and his predecessor George W. Bush have long argued that biofuels, a booming industry in the U.S., are necessary to cut America’s dependence on imported oil. (Dow Jones Newswires, March 30, 2011).
For Australia, the best crop for ethanol is sugar-cane.
Mandating ethanol in fuel will help stabilise the price of sugar-cane and reverse our rapidly declining sugar-cane production, for both ethanol and sugar.
The global price of sugar is highly unstable. It fluctuates directly with the price of oil and the world supply of sugar. Consider Brazil, the world’s second largest ethanol producer after the U.S.
When rising oil prices make ethanol relatively cheaper, Brazil diverts more sugar-cane into ethanol production. But when there are shortages of sugar, because of bad seasons in growing countries, cane is diverted from ethanol to more profitable sugar production.
Currently, Australian farmers don’t have the ethanol option. Exporting 85 per cent of the crop as sugar onto the world market, they are left highly exposed to volatile prices.
Australia needs both sugar and ethanol production to improve the nation’s energy security, to provide stability to the sugar-cane industry and some stability to fuel prices, and to stop a collapse in sugar-cane production.
An Australian ethanol industry could also use grains and corn, which, unlike sugar-cane, can be stockpiled for use during the sugar-cane off-season.
Critics of ethanol — such as Ray Evans (Quadrant Online, February 21, 2011), Danish author Bjorn Lomborg (The Australian, March 21, 2011) and Australian research biologist Sir Gustav Nossal (The Australian, June 5, 2008) — claim that turning more corn and grain farmland over to biofuels production will be at the expense of food production.
Their claim is partly wrong and partly simplistic.
First,in countries such as the U.S., Brazil, Europe and potentially Australia, ethanol production sets in motion a production chain that increases high-quality food production.
Already, large amounts of corn and wheat are already used as essential stock feeds for beef, pork and poultry.
When corn and wheat are used for ethanol, the production process strips out only the starch content leaving behind a high-value feed stock. By volume, this concentrated distillers grain or “stillage” is three times as rich in protein, fibre, fat and minerals than the original corn or wheat, according to a report by the Rural Industries Development Corporation.
The report, Biofuel Co-Products as Livestock Feed (2007), shows that ethanol adds value to corn and grain by allowing them to be used twice, first for ethanol and then the “stillage” by-product for a high-value stock feed.
The U.S. government’s drive for more ethanol has pushed up corn production, leading to a huge increase in the supply of distillers grain for producing more pigs, cattle and poultry for human consumption.
When managed properly, ethanol can boost food production as it becomes more profitable for farmers to produce corn and wheat, and then “stillage”.
Second, in 2008, a World Bank report made global headlines when it claimed that “large increases in biofuels production in the United States and Europe are the main reason behind the steep rise in global food prices”. (A Note on Rising Food Crisis, World Bank,2008).
What didn’t make the headlines was an Organisation for Economic Co-operation and Development (OECD) report which concluded that “the impact of current biofuel policies on world crop prices, largely through increased demand for cereals and vegetable oils, is significant but should not be overestimated.
“Current  biofuel support measures alone are estimated to increase average wheat prices by about 5 per cent, maize by around 7 per cent and vegetable oil by about 19 per cent over the next 10 years.” (Economic Assessment of Biofuel Support Policies, OECD, July 2008).
Then, in 2010, the World Bank revised its claims that ethanol forced up food prices, saying, “the effect of biofuels on food prices has not been as large as originally thought, but that the use of commodities by financial investors (the so-called “financialisation of commodities”) may have been partly responsible for the 2007/08 spike”. (Placing the 2006/08 Commodity Price Boom into Perspective, World Bank, July 2010).
At the time, News Weekly pointed out that rising world food prices were not due to ethanol production. In fact, one cause was the rising demand for high-quality, grain-fed beef, pork and poultry by China and the other emerging nations. (“Ethanol doesn’t have to compete with food”, News Weekly, April 12, 2008).
Ethanol from corn and grains helps solve this problem by making it more profitable to grow corn and wheat, then boosting available distillers’ grain-feed stocks for animal protein production.
Third, Ray Evans’s further claim, that food riots in Mexico were caused by ethanol production forcing up the price of corn (the basis of Mexico’s staple food “tortillas”), is just plain wrong.
In a detailed investigation of the Mexico riots, Laura Carlsen, director of the Americas Policy program in Mexico City (part of the Center for International Policy), pointed out on May 19, 2008, that in 2006 Mexico had a record corn crop of 21.9 million tons and had record imports of 10.3 million tons.
She said, “No part of the tortilla crisis had to do with a real problem of scarcity.”
A major reason for the crisis stemmed from the concentrated power of the four main companies controlling both the Mexican corn market and the imported corn market — Cargill, Maseca-Archer Daniels Midland, Minsa-Arancia Corn Products International and Agroinsa. Their market power has grown after Mexico’s signing of the North American Free Trade Agreement (NAFTA) with the U.S.
These companies had purchased the Mexican 2005-06 crop at 1,450 pesos and the following crop at 1,760 pesos per ton, then hoarded the corn and drove up prices to 3,000-3,500 pesos per ton by December 2007.
Simultaneously, the Maseca company, which controls 73 per cent of the corn-flour market, used its market power to undercut the 70,000 traditional small mills producing corn-flour.
Maseca was out to increase its market share for corn-flour.
Mexicans call this handful of powerful corporations controlling the corn trade and corn-flour markets the “corn-tortilla cartel”.
(The full account of this manipulation of Mexican corn prices may be accessed from the online version of this News Weekly article).
Fourth, at the same time as the prices of corn and wheat were rising in 2007-08, so too was the price of rice. And rice is not used in ethanol production.
This indicates that there were issues other than the reallocation of land for biofuel crops that were forcing up the price of food.
There are many complex issues affecting the production and price of food.
In some poor nations, farmers turn to biofuel crops because domestic food prices are being undercut by cheaper imported foods. Some of these imports are dumped, subsidised or simply produced cheaper in high-tech, industrial agricultural farms in the West or in emerging economies.
The high price of oil forces up food prices because high oil prices force up every part of the food production process — fertilisers, farm equipment, transport, processing and retailing.
Over the past 30 years, there has been declining investment in new plant varieties, thanks largely to cuts in government research.
Consequently, after the “green revolution”, which saw huge increases in farm productivity, the rate of increase in yields has been falling.
It would be simplistic to think that stopping biofuel production will necessarily lead to greater food production and lower food prices.
It’s time that the myths blaming biofuels for rising food prices are dispelled and for Australia to establish a domestic ethanol industry, for the sake of energy security and for the sake of future food production.
Patrick J. Byrne is vice-president of the National Civic Council.
John Baffes and Tassos Haniotis, Placing the 2006/08 Commodity Price Boom into Perspective (The World Bank Development Prospects Group, July 2010): Policy Research Working Paper 5371.
Andrew Braid, Biofuel Co-Products as Livestock Feed (Rural Industries Research and Development Corporation [RIRDC], Australian Government, Canberra, November 2007).
Patrick J. Byrne, “Ethanol doesn’t have to compete with food”, News Weekly (Australia), April 12, 2008.
Laura Carlsen, “Behind Latin America’s food crisis”, Hunger Notes (World Hunger Education Service, Washington, DC) May 19, 2008.
Jared A. Favole, “Obama calls for expanded oil, ethanol production in U.S.”, Dow Jones Newswires, March 30, 2011.
Donald Mitchell, A Note on Rising Food Prices (The World Bank Development Prospects Group, July 2008): Policy Research Working Paper 4682.
Organisation for Economic Co-operation and Development (OECD), Economic Assessment of Biofuel Support Policies: Summary of OECD Report(Directorate for Trade and Agriculture, OECD, Paris), July 16, 2008.