As Cars Go Green, Food Prices Will Jump

Ethanol demand has unexpected impact on farmers and the global food supply.


April 9, 2007 — -- Near Lake Geneva, Wis., farmer David Adams plans to seed his fields. But this year he'll be sticking with one commodity -- corn.

In about two weeks, he'll be fanning out over several hundred rolling acres, responding as he and other farmers do every year to the law of supply and demand. And this year the demand is for corn, corn and more corn.

"The price of corn looks like it will be better than wheat or beans," Adams says, while understating the case a bit.

Corn has about doubled in price during the last few months, thanks to an increasing demand for ethanol -- the mostly corn-based alternative fuel that burns cleaner than oil and, ideally, could one day reduce American dependence on oil imports.

And with ethanol production taking an increasing percentage of the corn crop, farmers are hard-pressed to meet the traditional demand for corn as a food stuff for human or animal consumption, even though the Agriculture Department predicts 15 percent more corn will be grown this year than last.

Adams will plow under his wheat and alfalfa fields to plant corn instead.

With Detroit now talking up the merits of "flex-fuel" cars that could run on ethanol, distilleries that make the stuff are sprouting across the Midwest like so many corn stalks. All of which is great -- if you grow corn.

But if, say, you're David Kyle, a dairy farmer a few miles up the road in Elkhorn, Wis., the higher corn prices are no cause for celebration.

"I'm sure that they didn't think down the line how the livestock producers would be affected," he says in an interview outside his barn.

Kyle has about 100 head of Holstein milking cows. They are animals that just love to eat corn feed, and Kyle says corn protein helps produce better milk. But the higher corn prices Adams enjoys mean that Kyle has to pay almost double this year for the corn feed he gives his cows.

Kyle says he may well have to reduce his herd, which means "there'll be less milk produced because of the price of corn. That's the bottom line."

It gets more complicated.

Pigs, chickens, turkeys steers all are fed a mix of corn feed too. As a result, you guessed it, the price for those items will be rising at the supermarket.

"Almost everything in our refrigerator contains corn," says Lester Brown of the Earth Policy Institute. "Whether it's milk or eggs or chicken, pork, beef, ice cream, yogurt -- these are all corn products."

And consider this: The price of wheat, soybeans and other crops will go up because farmers will be planting less of each.

Brown says the nation needs a "timeout" in building ethanol distilleries so people can consider the direction in which they are heading.

"While there are 40,000 members of the American Corn Growers Association," he says, "there are 300 million consumers in this country -- all of whom get their food from supermarkets. And that supermarket checkout shock that they're going to be getting as a result of diverting so much grain to ethanol could be a political wake-up call."

And with the United States serving as bread basket to much of the world, what happens to America's crops is of interest far beyond the local supermarket shelf.

"What we're beginning to see is a sort of epic competition emerging in the world between the 800 million people who own automobiles and the 2 billion poorest people in the world who are now beginning to compete for the same grain supplies," Brown says. "We've never faced a situation like this before."

It is, one might say, an unprecedented conflict between two laws: supply and demand versus unintended consequences