Food price hikes behind call to cut ethanol production

A U.S. environmental analyst is calling for a moratorium on licensing new ethanol plants, saying production of the alternative fuel is spurring food inflation around the world

Lester Brown, president of the Washington-based environmental group Earth Policy Institute, told reporters Thursday that converting food crops to fuel crops will most certainly drive up the cost of filling the average consumer's fridge.

'The appetite for fuel is from an agricultural point of view simply insatiable.' —Lester Brown, Earth Policy Institute

In the U.S., he said, the cost of bread at the end of last year was up 12 per cent over 2006. Milk and egg prices increased 29 per cent and 36 per cent, respectively, over the same time frame, he said.

"Though we've seen some hefty price rises around the world, they're going to go higher," Brown said. "The only question is how much higher."

In 2006, 54 million tonnes of U.S. grain crops went into ethanol production, Brown said. In 2008, 114 million tonnes are expected to be sent to ethanol distilleries.

The current ethanol supply services about three per cent of the U.S.'s fuel demands, he said, noting that if the entire U.S. grain harvest was converted into fuel for cars, it would cover about 18 per cent of the country's automotive fuel needs.

"The appetite for fuel is from an agricultural point of view simply insatiable," he said.

As food supplies fall, more countries are closely guarding their reserves, Brown said. For example, Russia has announced plans to impose a 40 per cent tax on its wheat exports, while Argentina in December closed its wheat export registration, he said.

Inflation has also triggered political unrest, Brown said, referring to last February's tortilla demonstrations in Mexico, where protesters rallied against 400 per cent price increases. Consumers have also protested price hikes for flour in Pakistan and soybeans in Indonesia.

Groups including the Canadian Renewable Fuels Association and the U.S. Renewable Fuels Association refute arguments suggesting ethanol demand is driving up the price of consumer goods. Both groups cite a December study conducted by Informa Economics that suggests high labour, packaging, transport, energy and advertising costs are helping to raise prices. New demand for exports in Asia is also driving up costs, the report suggested.

Canada's federal government in March announced plans to spend up to $1.5 billion over seven years to promote alternative fuels such as ethanol. The government also said by 2010, Canadian gasoline will consist of five per cent renewable content.