Ethanol No Better than Oil Part 1: Inflation


Western Countries have been clamoring OPEC to increase the production of oil to prevent a rise in inflation and the stalling of the global economy. The US and other countries have been trying a myriad of different ways to cut its oil use. Ethanol was the US' response to the rise of the price of oil. It was argued that it can be produced domestically very easily and that it is more environmentally friendly. Corn ethanol would help the US economy since there usually is a surplus of corn produced in the country.

Ethanol is a biofuel that is produced from corn in the US, Brazil produces ethanol with sugar cane. Ethanol and similar biofuels are not the savior from the oil crisis. Gas prices alone are not causing the rise of inflation, ethanol is a major contributing factor. The prices of most staple food items, wheat and corn, have been on a rise in recent months.

Corn is the US' biggest export; it now produces more corn for ethanol than its sells abroad. According to the Economist "America's ethanol program accounts to over half of the worlds unmet need of cereals". The grain needed to fill up a SUV through ethanol is enough grain to feed a person for a year! Bushels of wheat rose to $400 a ton in September up $200 since May. Corn prices are at a world record of $175 a ton, which is over 50% more then the price of corn in 2006. The rise in prices in corn and wheat have made farmers to put more of the land for corn and wheat uses, replacing other food crops. US government subsidies have stimulated this current dilemma by encouraging the production of ethanol, which was already blossoming. The subisidies include tariffs on foreign produced ethanol

The biggest factor is that the production of corn and wheat has declined outside of the sphere of bio-energy. Wheat, soy, and other crops have been cleared away by farmers who turn to corn. Many farmers in the US have now harvested their corn for ethanol purposes and not for human consumption. Other farmers stopped harvesting other crops for the same purpose, weakening the food supply and increasing demand of other food items. Meat prices are rising because corn and wheat are needed for animal feed. The supply of these agricultural products is not keeping up with demand. Hops and barley the key ingredients in beer are also in high demand, forcing you to pay an extra dollar for that six pack of suds at the liquor store. All courtesy of corn ethanol production. With the subprime crisis still in full swing, do not expect the US economy to make much gains any time soon.

Also Internationally speaking, US corn ethanol, has made it more expensive for the US government to buy food for international humanitarian aid. Corn prices due it the rise in demand has made it more costly to send this type of humanitarian aid to Third World countries. The US has spent less than half of the amount for food aid last year than it spent on food aid in 2000. The hungry poor's woes are only get worse as food becomes more expensive. Other governments are going get less bang for their buck as well, when they purchase food for humanitarian aid. NY Times


Stay tuned for Part II: Ethanol's impact on the Environment