Summary
I wrote this same analysis April 11th, 2008 and a white paper prior to this in 2003. The same holds true. Ethanol production from feed stocks that are otherwise used for food will ultimately fail in the long run. Ethanol plants like any other refinery are built for a service life of 30 years; subsidies can not be sustained for 30 years. Sugar albeit is a much better feedstock than corn, it still will fail in the long run just by the very fact that sugar refiners and food processors can withstand sharp price increases with much more ease than an ethanol producer.
Analysis
I have watched the ethanol business grow in Brazil, the USA, Europe and the Canada and it never ceases to amaze me that people, organizations, columnists and business people fail to see the risks in using a “foodstock” for ethanol production. Yes in the early 1900’s people made ethanol to run their vehicles from corn and even sugar. But the reasoning behind that was obvious; frankly there were not enough gas stations in the country. For a farmer running out of fuel was not acceptable, so it was a matter of necessity and most people were farmers back then. Further there was not nearly the proliferation of vehicles per capita as there is now. So applying the logic of yesterday to today is an error. That could not be more evident by the fact that corn is nearly $6.00 per bushel.
Clearly the investment community has seen the light, almost all proposed ethanol plants that have stated they will be using a “foodstock” as feedstock are struggling to get funded. The US government has also seen the light and is studying the ways to move from corn based ethanol production to other sources like sweet grass. Though I cannot say the US government has learned the lesson in regards to ethanol production from “foodstocks” such as corn and sugar, I can say I applaud their not moving forward on the initiative of Mr. Pete Carrothers. Mr. Carrothers should look a little further outside the box and see the great commercial opportunities available right now for ethanol production from other feed stocks.
Though I must say that ethanol is not the lone culprit for rising food costs and the looming world food crisis, I can say it is a contributor to a percentage. Another contributor is the rising oil prices which quite frankly effects every commodity that is transported to a marketplace.
In conclusion I will say ethanol is not the bad guy, the process we choose to make ethanol is where the scrutiny needs to be. Ethanol produced from crops such as miscanthus grass succeed in economics without subsidies, GHG reductions and reasonable energy ratios unlike "foodstocks" like corn.
