Underestimated US ethanol craze may hurt poor-EPI
Source: Reuters
By Timothy Gardner NEW YORK, Jan 4 (Reuters) - Poor people in countries that depend on grain imports could soon be hit with rising food prices driven by explosive growth in the number of U.S. distilleries producing the alternative motor fuel ethanol, an environmental expert said on Thursday. "Soaring food prices could lead to urban food riots in scores of lower-income countries that rely on grain imports," Lester Brown, president of Washington, D.C.-based Earth Policy Institute, a environmental research organization, told reporters on a conference call. Consumers in Egypt, Nigeria, Mexico and Indonesia, where many spend more than half their income on food, would be hardest hit, he said. U.S. ethanol demand for corn will rise to 139 million tonnes by the 2008 harvest, half of the U.S. corn crop and more than double the U.S. Department of Agriculture's forecast of nearly a year ago, said Brown. Ethanol producers have been struggling to keep up with demand amid high petroleum prices and as oil companies use it as a replacement for the gasoline additive MTBE, a suspected carcinogen banned in several states. The Bush administration has offered producers millions of dollars in incentives in an attempt to reduce imports on foreign oil. Demand has already pushed grain prices higher. U.S. corn prices rose to more than $3 a bushel late last year, a dollar above prices of a year before and near the record price set 10 years ago. on the rising demand for the grain from ethanol plants. PUSHING OTHER GRAINS HIGHER Higher corn prices can also push wheat and rice prices higher as consumers buy those grains instead. Brown called for a government-mandated moratorium on new ethanol plants until the country can figure out how to meet rising fuel demand without boosting grain prices, perhaps by requiring increases in the fuel efficiency of cars. The Renewable Fuels Association, which publishes a list of plants, has not kept up with the number of plants under construction, he said. There are currently 79 U.S. distilleries being built, according to a compilation released by Brown's EPI on Thursday. The RFA said there are 73 U.S. plants in the works, a number it has pushed up from 50 since late November. The RFA has kept up with the growth as fast as it can, said spokesman Matt Hartwig, as some companies have either exaggerated or been slow to announce their projects. The USDA said it will project in early March how much of the 2008 corn harvest ethanol will consume. Distilleries took 20 percent of the harvest in 2006, up from 6 percent in 2000, it said. The USDA would not comment on Brown's predictions directly, but pointed to comments by USDA Chief Economist Keith Collins in October last year. Collins said then that rising demand offered farmers opportunity, but was also creating a "euphoria" that could lead to higher corn prices and broad ripple effects on agricultural commodity markets. Hartwig said that as corn prices rise they could spur farmers to use new hybrids of corn seeds that could increase yields.
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