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

For Immediate Release: 
Monday, June 16, 2008

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, helping to push food and feed prices to record highs, doing little to lower gas prices while forcing taxpayers to pay oil companies subsidies to use ethanol. 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 this year at the Informa Economics Conference questioned the federal government's 'good weather' policy.

“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 - Full Story Here: http://www.agweb.com/get_article.aspx?pageid=143685

The rush to support corn ethanol via the ethanol mandate 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, 20 percent of the U.S. corn crop was diverted to fuel. One factor was the high price of oil that made ethanol competitive as a transportation fuel. Another factor was the signal Washington's food-to-fuel ethanol mandate sent to investors to continue the rapid expansion of the industry. This year, 30 percent of the corn crop is expected to go into our gas tanks. 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 which 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. In response to questions about the impacts of the weather disturbances on the corn crop, Al Dutcher, a state climatologist for the University of Nebraska said, “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.” 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

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EWG is a nonprofit research organization based in Washington, DC that uses the power of information to protect human health and the environment.

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