Will Food Prices Go Up When There is a Big Market For Alcohol Fuels?

Some people are worried that with the passing of the Open Fuel Standard Act, food prices will rise because ethanol can be made from corn and sugarcane — two important food commodities on the world market. This fear was originally cultivated deliberately in the public's mind back in 2008 when oil companies and food makers allied with each other to claim that the commodity price boom at the time was caused by ethanol (read more about that).

It was a false accusation. The price boom was driven by steeply escalating oil prices, because oil prices directly affect food prices. OPEC's deliberate tactic of creating boom-and-bust cycles of worldwide oil prices is one of the main arguments in favor of the Open Fuel Standard Act. The reduction of OPEC's control over America's economy will go a long way toward stabilizing food prices.

Beyond that, this new bill is not ethanol-specific. This is a technology-neutral, fuel-neutral bill. At the moment, methanol is cheaper than ethanol or gasoline, and can be made from something the United States has in abundance — natural gas. Ninety percent of methanol today is made from natural gas.

And people are coming up with new fuels. Once the bill passes, there will be a big, open market for liquid fuel, and we'll see a blossoming of inventive new ways to make cleaner, cheaper transportation fuels. The profit incentive will be tremendous. In Fiscal Year 2008, "Americans paid $900 billion for their oil supply," wrote Robert Zubrin. That's a lot of incentive.

The EPA already approved a new alcohol as a fuel additive late last year — isobutanol — that can made from various non-food feedstocks like garbage and biomass. It burns clean and has a higher energy density than ethanol. (Gevo’s Isobutanol Receives EPA Fuel Registration.)

Another aspect of this issue is subsidies. Price supports for corn would no longer be necessary once there is a large market for ethanol made from corn. The food industry feared they would have to pay "market prices" for corn syrup and animal feed, which is why they joined with oil companies to scare people about the danger of ethanol raising food prices.

“Big Food for years has used underpriced corn syrup, enjoying taxpayer dollars paid as price supports to corn farmers, as a replacement for sugar, because the U.S. has a sugar quota and tariff system that keeps sugar prices much higher than elsewhere in the world,” said Anne Korin. “But instead of taking on the sugar lobby, Big Food has masqueraded itself as a defender of the market and the poor, in the hopes of reverting to a world in which ethanol goes away, corn price supports are required, and it gets all the underpriced corn syrup it wants.”

These quotas, tariffs and price supports might eventually be dropped as the growers find a larger and steadier market for their products. Already, because of the growing use of ethanol for fuel, ethanol subsidies are coming to an end (read more).

There are at least eleven good reasons to pass the Open Fuel Standard Act. Maybe we could add a twelfth: A freer market.

Update: Oil companies in 2008 exploited the rise in food commodities at the time, and blamed it on ethanol. It was a clever ruse. Several studies have been done on it, and ethanol production had almost no impact on food prices.

What had the biggest impact? Oil prices! Oil companies spent millions of dollars to scare the public about ethanol. Read more about that here.

But the ethanol program was originally begun because grain producers were trying to find other uses for their crops. American farmers had become so good at growing grain that they flooded the market with too much grain, causing worldwide prices to drop so low that farmers all over the world couldn't make a living.

The U.S. government did two things: It paid farmers not to grow grain (to keep them in business but to prevent another food overabundance) and it encouraged the search for other uses of corn. The development of high fructose corn syrup was one of the new markets developed out of this.

American farmers are incredibly productive. Producing ethanol will not cause food prices to rise. The Open Fuel Standard may even lower food prices because it will force oil companies to have to compete with other fuels at the pump.

And keep in mind, the Open Fuel Standard is technology-neutral. We can make ethanol out of other things besides corn, including waste, and methanol can be made out of almost anything.

Read more:

The Food Industry's Propaganda Campaign Against Ethanol

Since Corn is Such an Important Food on the Global Market, Wouldn't Ethanol Production Cause Starvation?

BBC: Will Biofuel Leave the Poor Hungry?

Ethanol Policy and Meat Prices: Unspinning the Truth

Ethanol and World Hunger

Agriculture is Not a Zero-Sum Game

Everything is Up, But Corn is Up Because of Ethanol? Get Real.