Alternative Fuels Now

I’m the first to admit that the current round of ethanol is not perfect. The rising demand for ethanol has put more land under cultivation, increased water shortages, and increased fertilizer and pesticide use. For all that, corn isn’t really a great way to create ethanol, only producing 1.3 units of energy for every 1 unit put into its creation.

However, it is NOT responsible for the 40% increase in food prices over the last few years. It might seem like an easy target, but let’s start with some logic, and then move into the solid figures.

First, how could an increased demand for non-edible corn (used mostly to make high fructose corn syrup and feed for cattle, chicken and pigs) increase prices of pasta in Italy, onions in India and rice in China?

Second, is there any other trend, besides the increase in biofuel production that could be blamed for rising food costs. Any trend at all? Possibly a larger, more global, more significant, and much more difficult to deal with trend?

Yes, it turns out that there are two such trends. The rising prosperity of people in the world, who are now happy to be eating more (and more meat). And second, the related rise in fuel prices, due to increased demand in developing countries.

Of the 40% increase in food prices, about 3% can be attributed to food crops being used in biofuels. At least 8% (PDF) can be attributed to rising costs of fuel used to grow and transport the crops from farms to the grocer. But the big hunk comes in with increased demand.

As the world has become more prosperous, more people have begun to eat more food. Particularly in China and India, more people have begun to eat meat regularly. Simultaneously investors, seeking non-mortgage or debt-based assets to invest in, have begun to speculate on food crops. Assuming that costs will continue to increase along with increased affluence in the developing world, the commodities markets in food products have spiked.

Simultaneously, fertilizer prices have skyrocketed as they are also created from petroleum, and peculiar weather patterns and frequent droughts, possibly linked to global warming, have limited supply.

All-in-all, it’s not a good time to be burning what can otherwise be eaten. But there is no good reason to say that biofuels are the one and only problem. SUV’s are certainly limiting the future of the world, but not by burning hungry people’s food.

Corn ethanol is never going to be the whole solution, and we are very excited about the many cellulosic ethanol companies entering the market, but I’m tired of hearing about the supposed evils of ethanol. Let’s lay the blame where it belongs…greedy commodity investors, meat production, and the rising price of oil.

This article was inspired by VentureBeat’s discussion of the controversy between the Wall Street Journal and Vinod Khosla