By Jennifer Kho

The U.S. ethanol industry will require more than twice as much corn in 2008 as previously expected, driving grain prices to record heights, according to an Earth Policy Institute study released Thursday.

The study is intensifying the already heated “food vs. fuel” debate over whether using farmland for fuel crops—such as corn for ethanol—will jeopardize the food supply.

The National Corn Growers Association says corn growers can meet the rising demand for fuel without diverting corn from human food and animal feed markets. But China last week halted the expansion of its ethanol industry, blaming ethanol and other industrial corn uses for rising grain prices, according to Xinhua, China’s official news agency (see Corn Again: 3 Reasons Ethanol Will Be Back).

Food self-sustainability has traditionally been a sacred cow in China, where news that the country became a net food importer for the first time in 2004 set of a mini-crisis. And China, the world’s third-largest ethanol producer in 2005, isn’t the only country that is worried.

The U.S. Energy Information Administration estimates that 20 percent of the land in Europe and the United States would be needed to grow enough crops to replace just 5 percent of gasoline and diesel with biofuel. The U.S. Department of Energy estimates that starch-based ethanol production will top out at 12 billion gallons a year unless the industry taps into food crops.

Nicholas Parker, chairman of the Cleantech Venture Network, and Rona Fried, editor of Progressive Investor, a green investing newsletter, both have said ethanol production could usurp the food supply and spread genetic modification (see Biofuel Firm Altra Gets $50M). And at a panel last month, Luca Zullo, director of bioenergy at Cargill, called the “food vs. fuel” controversy “the 500-pound gorilla of the biofuel industry” (see Biofuels Smackdown: Soybeans vs. Algae).

Concerns over growing demand drove March corn futures up 57 percent to $3.90 in the fourth quarter, although they fell this week, closing at $3.68 on the Chicago Board of Trade.

Bumper Crop

The ethanol industry is growing quickly. According to the Renewable Fuels Association, U.S. production of ethanol grew from 3.9 billion gallons in 2005 to 4.8 billion gallons by May (with another 2.5 billion gallons of capacity in the works).

Lester Brown, president of Earth Policy Institute, a pro-environment think tank, says ethanol producers are building or planning to build more than 279 plants over the next several years, which would more than triple the number of plants already production at the end of 2006.

If the rate of construction matches that of the second half of 2006, the total ethanol production would increase to 15 billion gallons, the report concludes.

The U.S. Department of Agriculture last year projected that ethanol producers would consume 60 million tons of corn from the 2008 harvest. Mr. Brown said he now expects ethanol manufacturers to consume 139 million tons of corn in 2008.

“This unprecedented diversion of the world’s leading grain crop to the production of fuel will affect food prices everywhere,” according to the report. “As the world corn price rises, so too do those of wheat and rice, both because of consumer substitution among grains and because the crops compete for land.”

Aside from products made directly from corn, like breakfast cereals, high corn prices will also affect products made using corn, such as milk, eggs, cheese, butter, pork, beef, yogurt, and ice cream, Mr. Brown wrote.

“It is time for a moratorium on the licensing of new distilleries, a time out, while we catch our breath and decide how much corn can be used for ethanol without dramatically raising food prices,” he wrote.

Reaction

The National Corn Growers Association disputed the claim that demand for ethanol would grow faster than corn production. It said genetic modification and other technology is raising the yields of corn per acre and that corn growers have increased production in response to ethanol demand.

“Lester Brown continues to foster fear and increase rhetoric,” said association CEO Rick Tolman in a statement. “We have a very clear picture of the grain requirements for ethanol.”

The study could bolster the argument for producing cellulosic ethanol, which is made from materials such as cornstalks, wood chips, and switchgrass (see The Fuel of the Future?).

Brian Dean, an administrator and spokesperson for the newly formed Inter-American Ethanol Commission, said the Earth Policy Institute study essentially endorses the commission’s goal to open the market to all “environmentally sustainable and viable” sources of ethanol to compete on a free market.

“The Lester Brown study suggests that corn is the unique source of ethanol available to our marketplace,” he said. “Given the current structure of our federal policy, that is essentially the case, but the [commission] is pushing for a diversification of our sources of ethanol so we’re not restricted to one source.”