Rebuttal to Critics
Currently, only about 10 per cent of corn end up as a consumer foodstuff. Most corn grown in North America are used as livestock feed either domestically or overseas. Moreover, the cost of corn and other grains makes only a small contribution to the price of many consumer products, such as corn flakes and other cereals. For instance, a typical loaf of bread contains about five cents worth of wheat. Thus higher grain prices will result in slightly higher food prices. But a June 2007 analysis of food, energy and corn prices conducted by John Urbanchuk of LECG, LLC concluded that "rising energy prices had a more significant impact on food prices than did corn."
Ethanol does not take protein, fibre or fat from the food supply. Ethanol production uses only starch from grains, leaving the remaining protein, fibre, fats, vitamins and minerals. One bushel of corn produces more than 10 litres of ethanol and approximately 18 pounds of distiller grains, a significant ethanol co-product. Highly valued and nutritious, these grains are used in a variety of livestock feeds and can be exported for sale.
The supply of corn is rising. The U.S. Department of Agriculture has announced that this year's corn crop will be the largest in more than 60 years. Crop averages are also up in Canada, at a time when more corn is being produced per acre every year. Canada typically produces just less than 50 million tonnes of grain (wheat, barley, corn, oats, and rye) annually, and exports about half of it. If all Canadian gasoline contained 10% ethanol, about 8 to 9 million tonnes of grain would be required. Even at this level, Canada would remain a major grain exporter. Furthermore, ethanol in Canada is normally produced from lower value grains such as barley, corn and feed wheat, and can even be made from poor quality and damaged crops. Higher value 'bread' wheat will always remain in ample supply for export sales.
Also higher incomes in India and China have made hundreds of millions of people rich enough to afford meat and other foods. In 1985, the average Chinese consumer ate 20kg of meat a year but now he eats more than 50kg. China's appetite for meat may be nearing satiation and other countries are following behind. In developing countries as a whole, consumption of cereals has been flat since 1980, but demand for meat has doubled. Not surprisingly, farmers are switching too. They now feed about 200m-250m more tonnes of grain to their animals than they did 20 years ago. That alone increases and accounts for a significant share of the world's total cereals crop. Calorie for calorie, you need more grain if you eat meat than if you eat it as bread. It takes 3kg of cereals to produce 1kg pork. So a shift in diet is multiplied many times over in the grain markets. Since the late 1980s an inexorable annual increase of 1-2% in the demand for feedgrains has ratcheted up the overall demand for cereals and pushed up prices. Because this change in diet has been slow and incremental so it cannot explain the dramatic price movements of the past year. Thus rampant demand for ethanol is dominant reason.
