Corn, Ethanol - Reason for High Global Food Prices?

Global food demand is increasing as significant amounts of food is being diverted to produce biofuels. Half of the increase in global corn consumption in 2007 was related to ethanol production. This has already led to spillovers on prices of other food commodities through higher feed costs, crop substitution, and demand substitution etc; lets see how:

Some statistics regarding US corn in 2007: *19% of corn was used to produce ethanol; *4.1% was used to make high fructose corn syrup; *Over 50% was used as livestock feed (this is decreasing fast & other foodgrains are substuting corn to feed livestock).

According to the Renewable Fuels Association, just US is producing around 375,000 barrels per day. This is almost 2 billion bushels of corn a year (around 25% of the domestic use), and it’s growing. This simply means that 2 billion fewer bushels of corn are going into the food supply for both humans and animals.

We need to identify what effect (if any) does the increased production of ethanol have on the food supply and prices? Analyzing this requires careful study the correlation of corn prices vs ethanol prices.

Yes, we see a strong correlation. Though ethanol was minimally produced in the beginning of this decade, it had minimal affect on corn prices then. In 1999 only 1.5bn gallons of ethanol were produced a year verse over 5bn today. That’s a lot more corn, and this has shown on ever increasing prices of corn. Using food to produce biofuels might further strain already tight supplies of land and water all over the world, thereby pushing food prices up further.

Conclusion: The massive increase in ethanol production due to high energy prices has had an obvious effect on corn prices. Until Oil/Energy prices cools down, we can expect to see the food prices go up further (food prices having jumped 48 percent since 2006). One simple alternative is using switchgrass and jatropa instead of corn. This will not directly impact the food chain, since you can't eat it.

So next time you eat corn - relish it, who knows all the corn might make their way into your car fuel tank soon!! And wondering how much food & energy is contributing to increase in inflation globally ??.... have a look .....