Burning food for fuel creates interesting possibilities. In a recent issue of its Amber Waves periodical, the US Department of Agriculture Economic Research Service (USDA-ERS) hints at some of them.
Noting the dozens of ethanol plants under construction now that Congress has mandated the sale of 7.5 billion gal/year of ethanol in gasoline by 2012, the article asks, "Where will the corn come from?"
For a while, it says, inventories can supply enough of ethanol's currently preferred raw material to fill the gap between what's grown and what's needed. Storage recently held enough corn to make 5.7 billion gal of ethanol.
As the fuel ethanol mandate phases in and new distillation plants come on stream, however, more corn will be needed.
USDA-ERS suggests three possible market adjustments: increased competition for existing supply, diversion of supply from exports to ethanol, and greater production.
The first option raises US corn prices. The second lowers supply and raises prices for corn importers, stimulating production by non-US exporters. The third lowers production of rotation crops, such as soybeans, and boosts fertilizer use.
Meanwhile, a miniature food-energy cycle is developing around ethanol production. A distillation byproduct called distiller's dried grains with solubles (DDGS) enjoys growing demand as livestock feed. Locating an ethanol plant near a concentration of farm animals lowers feed transport costs and offers the plant a steady supply of manure for use as fuel.
These changes result from the new mandate for fuel from renewable sources atop longstanding state and federal subsidies for fuel ethanol. Beyond distillation itself, therefore, many business opportunities emerge: corn farming abroad, soybean farming on US land where it doesn't grow now, DDGS (inbound and outbound), and fertilizer, for example. And somewhere in the future lies commercial production of ethanol from wood and plant wastes, which are cheaper than corn but harder to process.
Oil and gas companies may see little sense in burning food for fuel, but there's money to be made in it. Who knows? The first one to invest in agribusiness in a big way might win a pass from future congressional harassment over gasoline prices.
(Online May 26, 2006; author's e-mail: email@example.com)