Biofuels and Bad Weather: America’s Food-Fuel Gamble

It’s Time for Congress to Revisit the Ethanol Mandate

Record Flooding and Possible Summer Drought Will Likely Send Food and Fuel Prices Even Higher

WASHINGTON – With relentless rains, cold temperatures, and record floods pounding the Midwest, the nation’s ill-conceived corn ethanol mandate appears headed into a perfect storm is helping to push food and feed prices to record highs, while doing nothing to put a dent in soaring prices at the pump. This was the conclusion by analysts at Environmental Working Group (EWG) after extensive interviews with top agriculture economists and climatologists.

In Iowa, 1.13 million acres of corn, nearly ten percent of the state’s total, already have been lost, and 4 million more are currently underwater. Across the Midwest millions more acres are likely to suffer significant yield loss because fields have been too wet to plant or are too wet to apply fertilizer or control weeds. Corn futures surged toward $8 per bushel in Chicago in response to what many are calling the worst flooding since 1993, when the corn crop was cut by 24 percent.

When the Bush administration and Congress triggered the ethanol boom in 2005 with the Renewable Fuels Standard (RFS) mandate and then raised the mandate five-fold in 2007, they ignored the impact this policy could have on food prices, relying entirely on good weather to make this roll-of-the dice decision a success.

“Our ethanol policy requires perfect weather, and not surprisingly, we aren’t getting it,” said EWG Senior Agriculture Analyst Michelle Perez.

In fact, EWG President Ken Cook in a speech in early April of this year at the Informa Economics Conference questioned the federal government’s ‘good weather’ policy.

“Assurances from the industry in the past months have not eased the rhetoric from the anti-ethanol lobby, however. In early April, Environmental Working Group Founder Ken Cook laid down the gauntlet and said the government’s policy to ensure an adequate food supply this year was to “hope for good weather.” Ethanol opponents, led by the EWG, the Grocery Manufacturers Association, , and livestock and poultry groups have ensured the debate is front and center in the news media this spring. The debate will likely intensify through the summer as the assessment of crop losses is realized,”
Top Producer Magazine, June 16, 2008

The rush to support corn ethanol via the ethanol mandate from Congress and the Bush Administration was so enthusiastic that even the experts were caught off guard by the size of the farm price increases this year.

Keith Collins, the former top economist at USDA for 15 years, during an EWG-sponsored call with reporters late last month, said, “We did not anticipate these soaring prices. No one forecasted $5.50 to $6.30 per bushel corn prices. We were in the $3.70 per bushel range.” Corn prices closed at $7.91 per bushel on Friday the 13th of June, 2008.

Last year, thanks to the RFS mandate, twenty percent of the U.S. corn supply was diverted into our fuel tanks. This figure is expected to rise to 30 percent for 2008. Ethanol and other food-crop based biofuels (like sugar cane, soybeans, canola oil, and palm oil) are a major new demand for cropland worldwide that would otherwise be growing food. Estimates for how much of the global rise in food prices is due to worldwide biofuels demand ranges from 10 to 30 percent.

“EWG is not saying the biofuels are the only cause of higher food prices. But our ethanol policy is a key factor in higher food prices that we can control since we can’t control the weather or global food and fuel demand,” said Perez. “Congress must immediately revisit the ethanol mandate to reduce the nightmare trifecta of feed, food and fuel prices at record highs just seven months after the mandate was put in place,” added Perez.

For climatologists and agricultural economists, the hope is that the current cold and wet weather conditions that have delayed corn planting and interfered with crop emergence do not continue. Unfortunately, comparisons between this year’s weather events and two historic weather disasters are already occurring. The 1988 drought and the 1993 Mid-West floods reduced corn production by 28 and 24 percent, respectively.

“The whole corn crop boils down to what Iowa and Illinois will do…. If you have any problem with those two states, the market will explode…It’s going to take extraordinary circumstances to get through this year without major interruptions in corn production… We’ve got a mess on our hands,” added Al Dutcher, a state climatologist for the University of Nebraska, in response to questions about the possible impacts of the excess water weather disturbances.

EWG’S complete analysis, Biofuels and Bad Weather: America’s Food-Fuel Gamble, can be found at the following link. http://www.ewg.org/report/biofuelsandbadweather