- That bowl of Kellogg's Cornflakes on the breakfast table,
or the portion of pasta or corn tortillas, cheese or meat on the table
is going to rise in price over the coming months as sure as the sun rises
in the East. Welcome ladies and gentlemen to the new world food price shock,
conveniently timed to accompany our current world oil price shock.
- Curiously it's ominously similar in many respects to
the early 1970's when prices for oil and food both exploded by several
hundred percent in a matter of months. That mid-1970's price explosion
led President Nixon to ask his old pal, Arthur Burns, then Chairman of
the Fed, to find a way to alter the CPI inflation data to take attention
away from the rising prices. The result then was the now-commonplace publication
of the absurd "core inflation" CPI numbers--sans oil and food.
Stephen Roche was the young Fed economist who was assigned the statistical
manipulation job by Burns.
- The late American satirist, Mark Twain once quipped,
"Buy land: They've stopped making it" Today we can say almost
the same about corn or all grains worldwide. The world is in the early
months of the greatest sustained rise in grain prices, for all major grains
including maize, wheat, rice that we have seen in three decades. Those
three crops constitute almost 90% of all grains cultivated in the world.
- Washington's calculated, absurd plan
- What's driving this extraordinary change? Here things
get pretty interesting. The Bush Administration is making a major public
relations push to convince the world it has turned into a "better
steward of the environment." The problem is that many have fallen
for the hype.
- The center of his program, announced in his January State
of the Union Address is called '20 in 10', cutting US gasoline use 20%
by 2010. The official reason is to "reduce dependency on imported
oil," as well as cutting unwanted "greenhouse gas" emissions.
That isn't the case, but it makes good PR. Repeat it often enough and maybe
most people will believe it. Maybe they won't realize their taxpayer subsidies
to grow ethanol corn instead of feed corn are also driving the price of
their daily bread through the roof.
- The heart of the plan is a huge, taxpayer subsidized
expansion of use of bio-ethanol for transport fuel. The President's plan
requires production of 35 billion gallons (about 133 billion liters) of
ethanol a year by 2017. Congress already mandated with the Energy Policy
Act of 2005 that corn ethanol for fuel must rise from 4 billion gallons
in 2006 to 7.5 billion in 2012. To make certain it will happen, farmers
and big agribusiness giants like ADM or David Rockefeller get generous
taxpayer subsidies to grow corn for fuel instead of food. Currently ethanol
producers get a subsidy in the US of 51 cents per gallon ethanol paid to
the blender, usually an oil company that blends it with gasoline for sale.
- As a result of the beautiful US Government subsidies
to produce bio-ethanol fuels, and the new legislative mandate, the US refinery
industry is investing big time in building new special ethanol distilleries,
similar to oil refineries, except they produce ethanol fuel. The number
currently under construction exceeds the total number of oil refineries
built in the US over the past 25 years. When finished in the next 2-3 years
the demand for corn and other grain to make ethanol for car fuel will double
from present levels.
- Not just USA bio-ethanol. In March Bush met with Brazil's
President to sign a bilateral "Ethanol Pact" to cooperate in
R&D of "next generation" bio-fuel technologies like cellulosic
ethanol from wood, and joint cooperation in "stimulating" expansion
of bio-fuels use in developing countries, especially in Central America,
and creating a "bio-fuels OPEC-like" cartel market with rules
that allows formation of a Western Hemisphere ethanol market.
- In short, the use of farmland worldwide for bio-ethanol
and other bio-fuels-burning the food product rather than using it for human
or animal food-is being treated in Washington, Brazil and other major centers,
including the EU, as a major new growth industry.
- Phony green arguments
- Bio-fuel-gasoline or fuel produced from refining food
products-is being hyped as a solution to the controversial Global Warming
problem. Leaving aside the faked science and the political interests behind
the sudden hype about dangers of global warming, bio-fuels offer no net
positive benefits over oil even under best conditions. Its advocates claim
that present first generation bio-fuels "save up to 60% of carbon
emission." As well, amid rising oil prices at $75 per barrel for Brent
marker grades, governments such as Brazil's are frantic to substitute homegrown
bio-fuels for imported gasoline. In Brazil today 70% of all cars have "flexi-fuel"
engines able to switch from conventional gasoline to 100% bio-fuel or any
mix. Bio-fuel production has become one of Brazil's major export industries
- The green claims for bio-fuel as a friendly and better
fuel than gasoline are at best dubious, if not outright fraudulent. Depending
on who runs the tests, ethanol has little if any effect on exhaust-pipe
emissions in current car models. It has significant emission, however,
of some toxins including formaldehyde and acetaldehyde, a suspected neurotoxin
which has been banned as carcinogenic in California.
- Ethanol is not some benign substance as we are led to
think from the industry propaganda. It is highly corrosive to pipelines
as well as to seals and fuel systems of existing car or other gasoline
engines. It requires special new gas pumps. All that conversion costs money.
- But the killer-diller about ethanol is that it holds
at least 30% less energy per gallon than normal gasoline, translating into
a loss in fuel economy per gallon of at least 25% over gasoline for an
Ethanol E-85% blend. No advocate of the ethanol boondoggle addresses the
huge social cost which is beginning to hit the dining room tables across
the US, Europe and the rest of the world. Food prices are exploding as
corn, soybeans and all cereal grain prices are going through the roof because
of the astronomical-Congress-driven-demand for corn to burn for bio-fuel.
- This year the Massachusetts Institute of Technology issued
a report concluding that using corn-based ethanol instead of gasoline will
have no impact on greenhouse gas emissions, and would even expand fossil
fuel use due to increased demand for fertilizer and irrigation to expand
acreage of ethanol crops. And according to MIT "natural gas consumption
is 66% of total corn ethanol production energy," meaning huge new
strains on natural gas supply, pushing prices there higher.
- The idea that the world can "grow" out of oil
dependency with bio-fuels is the PR hype being used to sell what is shaping
up to be the mist dangerous threat to the planet's food supply since creation
of patented genetically manipulated corn and crops.
- US farms become bio-fuel factories
- The main reason US and world grain prices are soaring
in the past two years and now pre-programmed to continue rising at a major
pace, is the conversion of US farmland to become de facto bio-fuel factories.
In 2006 US farmland devoted to bio-fuel crops increased by 48%. None of
that land was replaced for food crop cultivation. The tax subsidies make
it far too profitable to produce ethanol fuel.
- Since 2001 the amount of maize used to produce bio-ethanol
in the USA has risen 300%, trend increasing going forward. In fact, in
2006 US maize or corn crops for bio-fuel equaled the tonnage of corn used
for export. In 2007 it is estimated it will exceed the corn for export
by a hefty amount. The US is the world's leading corn exporter, most going
for animal feed to EU and other countries. The traditional USDA statistics
on acreage planted to corn is no longer a useful metric of food prices
as all marginal acreage is going for bio-fuel growing. The amount available
for animal and human feed is actually declining.
- Brazil and China are similarly switching from food to
bio-fuels with large swatches of land.
- A result of the bio-fuel revolution in agriculture is
that world carryover or reserve stocks of grains have been plunging for
six of the past seven years. Carryover reserve stocks of all grains fell
at the end of 2006 to 57 days of consumption, the lowest level since 1972.
Little wonder that world grain prices rose 100% over the past 12 months.
This is just the start.
- That decline in grain reserves, the measure of food security
in event of drought or harvest failure-an increasingly common event in
recent years-is pre-programmed to continue going as far ahead as the eye
can see. Assuming modest world population increase annually of some 70
million people over the coming decade, especially in the Indian subcontinent
and Africa, the stagnation or even decline in the tonnages of feed corn
or other feed grains including rice that is harvested annually as growing
amounts of bio-ethanol and other bio-fuels displaces food grain, in fact
means we are just getting started on the greatest transformation of global
agriculture since the introduction of the agribusiness revolution with
fertilizers and mechanized farming after World War II. The difference is
that this revolution is at the expense of food production. That preprograms
exploding global grain prices, increased poverty and malnutrition. And
the effect on gasoline import demand will be minimal.
- Prof. M.A. Altieri of Berkeley University estimates that
dedicating all USA corn and soybean production acreage to bio-fuels would
only meet 12% of gasoline and 6% of diesel needs. He notes that though
one-fifth of last year's corn harvest went to bio-ethanol, it met a mere
3% of energy needs. But the farmland is converting at a record pace. In
2006 more than 50% of Iowa and South Dakota corn went to ethanol refineries.
Farmers across the Midwest, desperate for more income after years of depressed
corn prices, are abandoning traditional crop rotation to grow exclusively
soybeans or corn with dramatic added impact on soil erosion and needs for
added chemical pesticides. In the US some 41% of all herbicides used are
already applied to corn. Monsanto and other makers of glyphosate herbicides
like Roundup are clearly smiling on the way to the bank.
- Going global with bio-fuels
- The Bush-Lula pact is just the start of a growing global
rush to plant crops for bio-fuel. Huge sugarcane, palm oil and soy plantations
for bio-fuel refining are taking over forests and grasslands in Brazil,
Argentina, Colombia, Ecuador and Paraguay. Soy cultivation has already
caused the deforestation of 21 million hectares in Brazil and 14 million
ha in Argentina, with no end in sight, as world grain prices continue to
rise. Soya is used for bio-diesel fuel.
- China, desperate for energy sources, is a major player
in bio-fuel cultivation, reducing food crop acreage there as well. In the
EU most bio-diesel fuel is produced using rapeseed plants, a popular animal
feed. The result? Meat prices around the globe are rising and set to continue
rising as far ahead as the eye can see. The EU has a target requiring minimum
bio-fuel content of 10%, a foolish demand that will set aside 18% of EU
farmland to cultivate crops to be burned as bio-fuel.
- Big oil is also driving the bio-fuels bandwagon. Prof.
David Pimentel of Cornell University and other scientists claim that net
energy output from bio-ethanol fuel is less than the fossil fuel energy
used to produce the ethanol. Measuring all energy inputs to produce ethanol
from production of nitrogen fertilizer to energy needed to clean the considerable
waste from bio-fuel refineries, Pimintel's research showed a net energy
loss of 22% for bio-fuel-they use more energy than they produce. That translates
into little threat to oil demand and huge profit for clever oil giants
that re-profile themselves as "green energy" producers.
- So it's little wonder that ExxonMobil, Chevron and BP
are all into bio-fuels. This past May, BP announced the largest ever R&D
grant to a university, $500 million to the University of California-Berkeley
to fund BP-dictated R&D into alternative energy including bio-fuels.
Stanford's Global Climate and Energy Program got $100 million from ExxonMobil;
University of California-Davis got $25 million from Chevron for its Bio-energy
Research Group. Princeton University's Carbon Mitigation Initiative takes
$15 million from BP.
- Lord Browne, the disgraced former CEO of BP declared
in 2006, "The world needs new technologies to maintain adequate supplies
of energy for the future. We believe bioscience can bring immense benefits
to the energy sector." The bio-fuel market is booming like few others
today. This all is a paradise for global agribusiness industrial companies
like Cargill, ADM and Monsanto, Syngenta.
- All this, combined with severe weather problems in China,
Australia, Ukraine and large parts of the EU growing areas this harvest
season, guarantee that grain prices are set to explode further in coming
months and years. Some are gleefully reporting the end of the era of "cheap
food." With disappearing food security reserves and disappearing acreage
going to plant corn and grains for food, the bio-fuel transformation will
impact global food prices massively in coming years.
- Another agenda behind Ethanol?
- Uh Huh. The dramatic embrace of bio-fuels by the Bush
Administration since 2005 has clearly been the global driver for soaring
grain and food prices in the past 18 months. The evidence suggests this
is no accident of sloppy legislative preparation. The US Government has
been researching and developing bio-fuels since the 1970's. The bio-ethanol
architects did their homework we can be assured. It's increasingly clear
that the same people who brought us oil price inflation are now deliberately
creating parallel food price inflation. We have had a rise in average oil
prices of some 300% since the end of 2000 when George W. Bush and Dick
Halliburton Cheney made oil the central preoccupation of US foreign policy.
- Last year, as bio-ethanol production first became a major
market factor, corn prices rose by some 130% on the Chicago in 14 months.
It was more than known when Congress and the Bush Administration made their
heavy push for bio-ethanol in 2005 that world grain reserves had been declining
at alarming levels for several years at a time when global demand, driven
especially by growing wealth And increasing meat consumption in China,
- As a result of the diversion of record acreages of US
and Brazilian corn and soybeans to bio-fuel production, food reserves are
literally disappearing. Global food security, according to FAO data, is
at its lowest since 1972. Curiously that was just the time that Henry Kissinger
and the Nixon Administration engineered, in cahoots with Cargill and ADM-the
major backers of the ethanol scam today-what was called The Great Grain
Robbery, sale of huge volumes of US grain to the Soviet Union in exchange
for sales of record volumes of Russian oil to the West. Both oil and corn
prices rose by 1975 some 300-400% as a result. Just how that worked, I
treated in detail in: A Century of War: Anglo-American Oil Politics.
- Today a new element has replaced USSR grain demand and
harvest shortfalls. Bio-fuel demand, fed by US government subsidies is
literally linking food prices to oil prices. The scale of the subsidized
bio-fuel consumption has exploded so dramatically since the beginning of
2006 when the US Energy Policy Act of 2005 first began to impact crop planting
decisions, not only in the USA, that there is emerging a de facto competition
between people and cars for the same grains. Lester Brown recently noted,
"We're looking at competition in the global market between 800 million
automobiles and the world's two billion poorest people for the same commodity,
the same grains. We are now in a new economic era where oil and food are
interchangeable commodities because we can convert grain, sugar cane, soybeans-anything-into
fuel for cars. In effect the price of oil is beginning to set the price
- In the mid-1970's Secretary of State Henry Kissinger,
a protégé of the Rockefeller family and of its institutions
stated, "Control the oil and you control entire nations; control the
food and you control the people." The same cast of characters who
brought the world the Iraq war, the global scramble to control oil, who
brought us patented genetically manipulated seeds and now Terminator suicide
seeds, and who cry about the "problem of world over-population,"
are now backing conversion of global grain production to burn as fuel at
a time of declining global grain reserves. That alone should give pause
for thought. As the popular saying goes, "Just because you're paranoid
doesn't mean they aren't out to get you."
- F. William Engdahl is author of the forthcoming book,
Seeds of Destruction: The Hidden Agenda of Genetic Manipulation, Global
Research Publishing, and author of A Century of War: Anglo-American Oil
Politics and the New World Order, Pluto Press. He may be reached via his