Corn-Based Ethanol Raises Ingredient Prices

Sept. 1, 2006
It’s amazing to see how $3-a-gallon gasoline finally has set off a frenzy to find alternatives to oil, not just here in the U.S. but around the world. Will we someday be competing with our own SUVs for food?

By Dave Fusaro, Editor in Chief

At first blush, the R&D effort looked like unassailable logic in a world bent on burning up every ounce of oil it could find underground. And maybe fighting wars over access to it. Then it hit me: Look at what they’re using in oil’s place!

In the U.S., the focus has been on ethanol, the fuel alcohol derived from corn. In England and much of Europe, the talk has been of biofuels – essentially using vegetable oils in diesel fuel. Both are pretty much benign as pollutants and are touted as renewable, home-grown (literally) resources.

Then, as we put together our Top 100© list for our August issue, a number of analysts we talked to warned that food companies were beginning to feel the effects of higher corn prices. Some of the shortage was due to lingering drought in some areas of the country, but at least part of the blame was laid on ethanol refineries buying up grain to make the alternative fuel (which, by the way, gives me 20 percent worse gas mileage than gasoline).

Then, in the past month, I saw a report from The Times of London that food prices could soar if the British government pushes ahead with a plan to promote the use of biofuels. Unilever, that country’s (and the world’s) largest producer of food-use vegetable oils, warned that of rising prices for food oils and products that contain them. Not only that, but the backlash could result in a return to less-healthy animals fats as food-oil replacements.

“The scale is dramatic,” warned Alan Jope, a Unilever vice president quoted in The Times. “To meet current EU quotas would require between 50 and 80 percent of rapeseed production. Ultimately, there could be supply shortages.”

The Times reported that the price of rapeseed, an ingredient in many margarines, has risen 20-30 percent over the past year. Palm oil, another essential food oil, rose 20 percent in just two months based on news that Malaysia and Indonesia plan to set aside 40 percent of their palm oil crops to produce biodiesel.

Then I starting hearing stories, perhaps some of them apocryphal.

I heard that during fuel price spikes in England, people nearly have bought out grocery store stocks of vegetable oils. Apparently, under certain conditions, they can pour them directly into their diesel engines.

In France, they apparently have such a surplus of wine they’re changing some of that into ethanol.
How will this affect the poorest countries of the world? If it comes to a choice between sending surplus grain to Africa or feeding ethanol refineries, which will win?

Will we someday be competing with our own SUVs for food?

Finding alternative energy sources is an absolute necessity in a world that is running out of oil. And renewable resources seems like an ideal way to go. But using food as the feedstock could lead to either clogged arteries or starvation. Maybe the researchers ought to look at the long-term ramifications.