Let them eat meat

In a presentation at the Wayne-Pike County Farm Bureau Spring Dinner, agricultural expert John Urbanchuk assured those assembled that corn ethanol production does not contribute to global food shortages and rising prices. As we understand it, the central thrust of his argument is that one major byproduct of the distilling process, distillers grain (DG), can be used as livestock feed and therefore actually expands the food supply.

Tell it to Tyson.

Tyson Foods, Inc., that is, whose CEO, Richard L. Bond, attributing the giant poultry and pork producer’s quarterly loss to skyrocketing feed costs, said, “Higher food costs is only one of the many unintended consequences” of the U.S. government’s ethanol-support policies.

DG doesn’t make a difference to Tyson because it is not suitable for use as more than a small portion of poultry and hog diets. Estimates vary, but one Penn State document recommends limits of 10 and 20 percent respectively—and the 20 is only with amino acid supplements. That’s too small a portion to make much of a dent in the rising cost of the remaining 80 to 90 percent.

Penn State also suggests a maximum of 20 percent DG for dairy cattle diets. Beef producers fare better: they can use up to 40 percent DG in their feed. But even for them, acreage diverted to ethanol production reduces feed supplies on a net basis. According to the Distillers’ Grain Association, roughly one-third of an acre’s worth of feed is produced, in the form of DG, for each acre of corn distilled into ethanol. The flip side is that two-thirds of an acre’s worth of feed is lost.

To be fair, ethanol corn acreage is not displacing feed corn acreage; it’s being added to it. Corn acreage in the United States rose by about 15 percent last year. But that increase came mostly at the expense of soybean acreage. Soybeans are, like corn, used for feed, but are also the source of 30 percent of the world’s cooking oil.* So the switch from soybeans to ethanol corn reduced both feed production from each acre by two-thirds, and cut into the supply of cooking oil.

Moreover, when it comes to feeding the world population, the most efficient crops are those, like wheat, suitable for direct human consumption. The lowest estimate we found for the amount of edible protein in an acre of wheat consumed directly by humans was 138 pounds. Plant grain for animal feed on that acre, and by the time it gets to your plate in the form of beef, you only have 25 pounds of edible protein, according to the highest estimate we found. Produce ethanol, and use the residual DG to feed steers, and you’re down to around eight pounds of edible protein—about six percent of what you’d have from an acre’s worth of wheat.

Due to worldwide shortages, wheat prices have risen over 80 percent in the last year, and the USDA projects this country’s wheat ending stocks-to-use ratio for 2007-08 at 10 percent, the lowest since 1946-47. But with government ethanol support policies in place, planting corn for ethanol still has the financial edge, and the expansion in corn planting intentions far outpaces that for wheat.

DG production only partially offsets the diversion of feed acreage to ethanol acreage, and does nothing to offset the crowding out of acreage that produces edible grains and oil. To the hungry of the world, to say that ethanol doesn’t affect the food supply because DG might make beef a little cheaper makes as much sense as Marie Antoinette’s fabled response to the bread riots that preceded the French Revolution: “Let them eat cake.”

There are many other factors leading to the food crisis: improving diets in China and India, climate change, peak oil, a fertilizer shortage and more. But that’s all the more reason for our government to reverse its corn-ethanol-support policies, as one of the few things over which we have control.

Last week, Deutsche Bank agricultural analyst Eric Katzman wrote in a note on ethanol powerhouse Archer Daniels Midland Co., “The political winds have been shifting against corn-based ethanol... investors need to take this into account vis-a-vis valuation.” Maybe people planning to build a corn-based ethanol plant should take it into account as well.

*Soybeans have their own problem with biofuels, as they are the major feedstock for biodiesel. The problem is the same as with corn ethanol, except that soybean biodiesel hasn’t received as much U.S. government support.

Dr. Punnybone

Mission Impossible