The Free Press, Mankato, MN

Editorials

February 6, 2007

Our View: The market will solve food-fuel dilemma

Just when we thought booming ethanol production would help rural America with much needed economic development and urban America with an alternative fuel supply, some economists are now predicting the ethanol boom will create more world hunger.

That’s because the use of corn for ethanol production by some projections will more than double in the next few years. Currently, about 15 percent of the corn crop is used for ethanol. With plants expected to be constructed in the near future, economists C. Ford Runge at the University of Minnesota and Benjamin Senauer say those plants will use 35 percent of the corn crop.

It’s not an unreasonable assumption, given the number of ethanol plants is expected to increase by more than 60 percent from now through the end of 2008. It’s not unreasonable to assume those plants will use that much more corn.

Still, there are things about the price and supply of corn worth keeping in mind. When farmers see the price of corn continue to rise as it has, they are much more likely to plant more of their acres to corn, instead of soybeans. And there are millions of tillable acres in the U.S. alone that can be switched.

The price of corn is a world price, and U.S. farmers are not the only ones who will add more acreage. Farmers around the world can do the same.

Large food companies, like poultry producer Tyson Foods, have also begun sounding the alarm, saying rising corn prices are likely to raise the price of meat and poultry because the industry uses much of the U.S. corn crop for feed.

But there are also substitutes for corn, and these large food companies do not exist in monopoly markets. Tyson will raise the prices of its turkey and chicken products as long as its competitors do the same. But that’s not a given. The food industry is very competitive. So the threat of higher prices is more of a theory than a reality.

The price of ethanol, via its use of corn, also must be compared against the price of not diversifying our national fuel base. A recent report showed the wars in Iraq and Afghanistan will cost each American $800.

The market will ultimately determine how much corn will be used for ethanol production and how much will be used to feed chickens. Higher corn prices and lower oil prices will likely reduce the demand for corn as an ethanol ingredient.

Already, ethanol producers, who will have invested tremendous amounts of money in the new plants, will have an incentive to look at alternative raw materials. At some price, corn will be too expensive to produce ethanol that has to compete with regular gasoline. Sugar cane is actually more efficient for ethanol production than corn and has been used successfully in Brazil.

Research is moving ahead on switch grass as an ingredient in ethanol production.

So we shouldn’t have to choose between reasonable ethanol prices and cheap food prices. The market will decide just how much corn we need.

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