The high costs of ethanol

Backed by the White House, corn-state governors and solid blocks on both sides of Congress's partisan divide, the politics of bio-fuels could hardly look sunnier. The economics of the American drive to increase ethanol in the energy supply are more discouraging, says the New York Times.

American corn-based ethanol is expensive. And while it can help cut oil imports and provide modest reductions in greenhouse gases compared to conventional gasoline, corn ethanol also carries considerable risks. Even now as Europe and China join the United States in ramping up production, world food prices are rising, threatening misery for the poorest countries:

  • Corn prices are up about 50 per cent from last year, while soybean prices are projected to rise up to 30 per cent in the coming year, as farmers have replaced soy with corn in their fields.

  • The increasing cost of animal feed is raising the prices of dairy and poultry products.

  • Ethanol production in the United States and other countries, combined with bad weather and rising demand for animal feed in China, has helped push global grain prices to their highest levels in at least a decade.

    Earlier this year, rising prices of corn imports from the United States triggered mass protests in Mexico. The chief of the United Nations Food and Agriculture Organization has warned that rising food prices around the world have threatened social unrest in developing countries.

    Source: Editorial, The High Cost of Ethanol, New York Times, September 19, 2007.

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    FMF Policy Bulletin/ 25 September 2007
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