CLAIMS that biofuels caused food price rises two years ago are a furphy, PETER HEMPHILL reports
Two years ago, livestock industries in Australia and the US and consumers in Third World countries were screaming "blue murder" over high grain prices.
While droughts in Australia had affected local grain prices, a tightening in global stocks corresponded in world prices skyrocketing on the Chicago Board of Trade.
The livestock sector blamed US ethanol industries for its woes, saying competition with biofuel companies for corn was forcing up grain prices.
When the price of corn caused staple food prices to rise in Central America, a "food versus fuel" debate took hold.
But there is now mounting evidence the ethanol industry was not to blame for the rising grain prices.
Indeed, a new report by the Renewable Fuels Association has dispelled the attacks on its industry as "falsehoods".
Biofuels were blamed for wheat price rises, even though the RFA report shows not one ethanol refinery in the US uses wheat to produce ethanol (although one plant did use a waste wheat starch, which would normally go to landfill, as a substrate for ethanol production).
CBOT wheat prices rose steadily from late 2006, hitting their peak of $US12.50/bushel ($A491/tonne) in late February, 2008.
Corn prices did not directly follow wheat's lead but gradually began rising in October, 2006, and peaked at $US8.07/bushel ($A342/tonne) in early July, 2008.
The RFA's recently released annual report card on the ethanol industry shows production of the biofuel has nearly doubled since 2006.
The report estimated US ethanol production at 40 billion litres in 2009 - more than double the 18.3 million litres produced in 2006 and a 63 per cent increase above 2007 production.
A check of Chicago Board of Trade corn prices shows they have fallen substantially since mid-2008.
Corn prices are now at the relatively sedate levels of $US3.70/bushel ($A165/ tonne) - about the same as what they were in late 2006, but above the historical base of $US2.30/bushel ($A100/tonne) prevalent from 2000 to mid-2006.
US Department of Agriculture crop report figures show American corn growers reacted to the price hikes of 2007 and planted more corn, mostly at the expense of soybeans.
The past three corn harvests have topped 300 million tonnes for the first time - well above the 267.5 million tonnes produced in 2006-07 when prices took off and US stocks fell to 33.1 million tonnes.
Ironically, stocks of 33.1 million tonnes were significantly higher than those in 2002-03 and 2003-04 when they got as low as 24 million tonnes in the US.
The corn price rise back then was barely a "blip" on the radar, only rising to $US3/bushel.
US corn stocks are now at about 45 million tonnes - slightly above the average stock levels of the 10 years to 2007-08.
Stocks have been building, despite the massive increase in use for ethanol production.
Putting it in perspective, the RFA said 96.5 million tonnes of corn was used to produce 40 billion litres of ethanol last year, equivalent to less than 30 per cent of the total US corn crop.
USDA crop reports show the US still had enough corn to export about 48 million tonnes in 2009 - its historical level of shipments - to overseas markets.
The RFA took a swipe at critics who incited the "food versus fuel" debate.
"Ethanol production has long been plagued by the falsehood that using corn to produce ethanol will result in increases in retail food prices," the RFA said.
"As numerous academics have pointed out, the real driver (in rising food prices) has always been energy prices."
For Australian grain growers, the "food versus fuel" misinformation severely dented the chances of government support for the local biofuels industry.
In its report in February 2008, the Victorian Government relied, in part, on the "food versus fuel" controversy to back away from bringing in mandatory biofuels targets in the state.
Grain growers are now facing a global glut of grain and consequential low prices that, coupled with a string of droughts, will barely make them able to financially survive.
