We ended 2007 with headlines foretelling the end of cheap food, and we entered 2008 with the lowest grain stockpiles on record, near-record grain prices and prospects for even tighter supplies as global demand rises for food and fuel.

Now, at the same time as federal mandates requiring large amounts of corn be turned into ethanol-based fuel, not to mention a growing global middle class, global food prices are at near-peak levels.

Biofuel is a fuel that is made, at least in part, from plant-based materials. Biodiesel is one example of the alternative fuel. Another example, and the one that is gaining more scrutiny than perhaps ever before, is ethanol. Ethanol can be made from biological sources and results from the fermenting of sugars with yeast. Some vehicles run on pure ethanol; others use ethanol blended with gasoline.

The recent shortage of grain stocks and the surge in food prices have triggered widespread concern and skepticism over the sustainable production of biofuels as vast quantities of corn and soy derivative products — flour, baked goods, meat, dairy and processed foods containing corn syrup and soy — are consumed indirectly.

"The question is, how big is the connection between those two developments?" The Christian Science Monitor proposed in January.

Most analysts agree increased biofuel production has contributed to the run-up in food prices.

"Ethanol is the dominant reason for [2007's] increase in grain prices," says The Economist. "Ethanol accounts for some of the rise in the prices of other crops and foods, too. Partly this is because maize is fed to animals, which are now more expensive to rear. Partly it is because America's farmers, eager to take advantage of the biofuels bonanza, went all out to produce maize this year, planting it on land previously devoted to wheat and soybeans."

Demand created by ethanol production increases the price a farmer receives for grain, which helps explain why a growing number of farmers are joining together to build ethanol production facilities; so do the generous tax allowance of 51 cents a gallon given to ethanol blenders in the U.S., provided that tariffs continue to keep out far more efficiently produced ethanol from the sugar plantations of Brazil.

Even proponents of ethanol production acknowledge that ethanol demand is a factor that helps explain the price increases. From January 2002 through September 2006, corn prices averaged $2.18 per bushel. However, between September 2006 and May 2007, corn prices jumped 61 percent to $3.56 per bushed in May 2007. A chart from U.S. News & World Report, based on Chicago Board of Trade numbers, lays it out: In less than 2 years (March 2006-January 2008), corn has risen from $2.36 a bushel to $4.69, wheat from $3.48 to $9.05 a bushel and soybeans from $5.72 to $11.82 a bushel.

The Economist puts it this way: Filling up an SUV's fuel tank with ethanol is the equivalent to having used enough maize to feed a person for a year.

On the other hand, there is little consensus on the scope of the relationship. While the ethanol industry says ethanol and other biofuels account for only 4 percent of the price surge, the U.S. Department of Agriculture says the figure is closer to 20 percent. According to the Renewable Fuels Association, the industry processed 18 percent of the domestic corn crop into ethanol and valuable feed co-products in 2007.

So how much of a role does ethanol play in those costs compared with other factors?

UK's The Guardian Observer cites four reasons for the rising food prices, one of which is market speculation and use of crops for fuel: "Since George Bush announced a rush to corn-based ethanol, it's done well for American corn farmers — 20 percent of whose harvest, subsidized by the government, went into fuel tanks rather than flour mills this year."

Congress last year mandated a ramp-up to 15 billion gallons of biofuels by 2015 and 36 billion gallons of biofuels produced annually by 2022. Of the energy bill's second goal, 21 billion gallons would be advanced biofuels and the rest would be the corn-based variety. The idea is based partly on trying to break U.S. reliance on Middle East oil suppliers and partly on pressure to cut down the ecological impact of energy production.

(On this last point, it is notable that ethanol's increasingly vocal critics claim that growing grain and then transforming it into ethanol requires more energy from fossil fuels than ethanol generates. Recent studies, including one led by Nobel Prize-winning chemist Paul Crutzen, reveal that biofuel production may actually lead to higher greenhouse emissions than conventional fuels.)

MarketWatch earlier this month projected 4 billion bushels of corn for ethanol use next year, up more than 30 percent from this year and accounting for nearly 40 percent of U.S. domestic corn consumption.

Yet while the escalating share of grain harvest going to ethanol distilleries helps drive up food prices worldwide, the connection between the expansion of biofuels and higher global food prices is still not clear.

"In reality," says the International Energy Agency (IEA), "there are a number of factors impacting food supplies and prices, including surging food demand, failed harvests and high energy prices."

Meanwhile, the increasing wealth in China and India is "stoking demand" for meat in those countries, in turn boosting the demand for cereals to feed to animals. And drought, floods and hurricanes around the world last year made for disappointing — in some places terrible — harvests.

According to a June 2007 analysis of food, energy and corn prices, "rising energy prices had a more significant impact on food prices than did corn." The LECG, LLC report, entitled The Relative Impact of Corn and Energy Prices in the Grocery Aisle, notes rising energy prices have twice the impact on the Consumer Price Index (CPI) for food than does the price of corn.

Only last month did global food prices start to show some decline after reaching their peak in March, according to the U.N. Food and Agriculture Organization. It was the first time since January 2007 that the index fell from the prior month. The decline suggests food prices may stabilize, albeit at their current high levels.

At least a third of the world today has government-imposed price limits on their foods.

Resources

The End of Cheap Food
The Economist, Dec. 6, 2007

Is This the End of Cheap Food
The Guardian Observer, Jan. 20, 2008

As Global Food Costs Rise, Are Biofuels to Blame?
by Mark Clayton
The Christian Science Monitor, Jan. 28, 2008

Cheap No More
The Economist, Dec. 6, 2007

What's Pushing Up Crop Prices
by Luke Mullins
U.S. News & World Reports, Jan. 24, 2008

Ethanol Facts: Agriculture
Renewable Fuels Association, 2007

Biofuels Deemed a Greenhouse Threat
by Elisabeth Rosenthal
The New York Times, Feb. 8, 2008

Kill King Corn
Nature, Oct. 11, 2007

N₂O Release from Agro-Biofuel Production Negates Global Warming Reduction by Replacing Fossil Fuels
by P. J. Crutzen, A. R. Mosier, K. A. Smith and W. Winiwarter
Atmospheric Chemistry and Physics Discussions, 2007

United Nations Says Food Prices Starting to Stabilize
by Moming Zhou
MarketWatch, May 16, 2008

IEA Views about Biofuels
International Energy Agency, May 2, 2008

Chinese Food Security: Debate over Brown Highlights Anxieties
U.S. Embassy Beijing, November 1996

Food Choices, Food Crises and Finger-Pointing
by Andrew Martin
The New York Times, April 15, 2008

The Relative Impact of Corn and Energy Prices in the Grocery Aisle
by John M. Urbanchuk
LECG LLC, June 11, 2007