Oil and gas are expensive? Move aside, folks, and make way for higher priced hot dogs. No sooner did we write of George Soros’s wish for a repeal of the current US tax on imported ethanol, than it was under way to being granted (OGJ, June 11, 2007, p. 35).
“Our goal as an economy should be to get ourselves off oil...and to move to ethanol production, which is the most efficient and cost-competitive,” said US Sen. Judd Gregg (R-NH).
Gregg was speaking of his plans to offer an amendment to an energy bill that would repeal the current US tariff on imported ethanol, and he clearly had an eye on his home constituency, saying that the current import duty amounts to an “arbitrary tax on people in the Northeast.”
Down with oil
As one observer put it, greater use of ethanol-as aimed at by the Senate energy bill Gregg supports-is seen as a way to boost development of US domestic energy sources and reduce the nation’s use of foreign oil.
The bill, in fact, would mandate greater use of ethanol by requiring production of renewable fuels to increase by more than fourfold to 36 billion gal/year by 2022 from an estimated 8.5 billion gal/year in 2008.
Sounds good, huh? Well, the proposed bill will probably spark a lively discussion on the Senate floor where ethanol industry advocates argue that the tariff-which limits imports from key ethanol-producing nations like Brazil-is crucial in allowing the US ethanol industry to develop and thrive.
The downside, though, is that growing demand for corn and other farm products used in alternative fuels is pushing up food prices around the globe, a trend expected to place an increasing burden on households, particularly in developing countries.
Costlier tortillas
And guess what? Largely behind the global price surge are US energy policies promoting the use of ethanol as an alternative to gasoline. In fact, expectations of increasing demand for biofuels have caused corn prices to soar since last fall.
The international trading price of corn reached about $4.30/bushel in February, the highest level in 10 years and 7 months, and it remains high.
The jump in grain prices is also affecting prices of other food items, including meat, eggs, and dairy products. During January-March, the price of beef sold by Tyson Foods Inc., a major US meat processing firm, rose 3% year-on-year, and that of the firm’s chicken jumped 9%.
In developing countries, rising food prices could become a source of social instability. In Mexico, for example, prices of tortillas-a corn-based staple-skyrocketed at the beginning of this year, prompting a number of public protests nationwide.
If not handled carefully, ethanol politics will clearly add a new level of meaning to the old question: Where’s the beef?