Ethanol's rise prompts worries of a corn crunch

Iowa's corn fields may seem like endless green oceans, but if dozens of new corn-to-ethanol biorefineries now in development are all built, they could swallow most of the state's corn crop.

Amid America's rush to replace gasoline with homegrown alternatives like corn-based ethanol, some researchers worry that the results may benefit motorists at the expense of higher food costs and fewer US crop exports. It also raises ethical and environmental questions about the best uses of crop land.

Fresh signs of ethanol's new economic impact are expected soon. After languishing for years, corn prices are projected to rise about 25 percent from around $2.00 a bushel currently to $2.45 a bushel this next crop year, reports the US Department of Agriculture (USDA). But as ethanol demand for corn kicks in, prices could go much higher in the future depending on gasoline prices. Meat and grocery prices could eventually rise as well, some analysts say.

"Ethanol has had huge impact on corn markets," says Jason Hill, a University of Minnesota researcher and coauthor of a study on ethanol's environmental impact published in the proceedings of the National Academy of Science last month. "Competition between food and fuel is growing, along with the environmental consequences as more ethanol facilities are built," the study says.

The drive to produce food-based biofuels is misplaced, because even if all US corn and soybeans were used, they "would meet only 11 percent of gasoline demand and 8.7 percent of diesel demand. There is a great need for renewable energy supplies that do not cause significant environmental harm and do not compete with food supply," the study says.

Such concerns aren't slowing the gold rush. With 101 ethanol biorefineries operating today, the US has 4.8 billion gallons of ethanol-making capacity, says the Renewable Fuels Association (RFA), which represents ethanol producers. Thirty-four new facilities and expansions of some existing plants will soon add 2.2 billion gallons of capacity toward the new Renewable Fuels Standard of 7.5 billion gallons by 2012.

About one-fifth of the 2006 corn harvest this year will be used to make ethanol, estimates Robert Wisner, an economist at Iowa State University at Ames. By 2012, ethanol's share of the corn crop could nearly double, he says.

"This is a huge transition [for corn growers] from being a food producer to being a major source of energy," says Dr. Wisner, who says ethanol may munch the state's corn crop in a few years. "Once these plants are built, they will continue operating and purchasing corn unless conditions become extremely negative."

One key impact is that the price of feed corn for cattle, pork, and poultry could rise 60 to 70 percent over the next two years, although meat and other grocery items may not see significant price gains for up to four years, Wisner says.

"We're monitoring the situation carefully," says Gregg Doud, chief economist for the National Cattlemen's Beef Association. Corn residue from ethanol production is a good feed supplement, but because ethanol removes starches, it does not meet all cattle nutrient needs, he notes.

Many don't see a problem ahead for the corn supply. As prices rise, more acres now devoted to other crops will shift to corn instead, experts say. New technology and genetically modified strains of corn are already producing higher crop yields.

"We've never said the ethanol industry would lead the US to energy independence, but it's part of it," says Jon Doggett, vice president of public policy at the National Corn Growers Association. "If we get price spikes, our growers are going to plant more to meet that demand."

"Everyone is aware of the limits on corn-based ethanol," says Matt Hartwig, a spokesman for the RFA. "That's why nearly everyone involved in this is also working on cellulosic [ethanol]. We're conscious of that upper threshold."

If cellulosic ethanol, which is made from nonfood crops such as switch grass and crop waste, becomes competitive, it could mean a dampening of demand to convert corn to fuel.

Until then, ethanol's larger share of the US corn crop could mean less US corn available for export, crimping some developing nations' ability to feed their poor – especially in years when corn-crop yields are sub par, some warn.

"Cars, not people, will claim most of the increase in world grain consumption this year," writes Lester Brown, president of the Earth Policy Institute, an environmental think tank.

Though global demand for food is expected to almost double in 50 years, consumption of transportation fuel is expected to grow even faster, Dr. Hill's study reports.

"The question of food versus fuel is a false choice, because the answer is we can do both," says Mr. Hartwig.

Others say the threat is not acute due to flexibility and reserves in the global agricultural supply system and many alternatives to corn and other bio-fuel grains for making fuel.

"Any rise in price or reduction in corn availability from the US will certainly affect people in developing nations," says Siwa Msangi, a research fellow at the International Food Policy Research Institute in Washington. "But we don't believe it will become a dire situation."

These questions don't worry some corn farmers including Ken McCauley. He and his neighbors near St. Joseph, Mo., are partners in a new ethanol facility that goes online in January.

To them, ethanol is a breakthrough that means making a profit instead of just breaking even. "You hear a lot of talk about there not going to be enough corn, but we've created this new demand, and we're actually helping meet the energy security needs of the country," he says. "We'll grow enough for everyone."