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 1970s when prices for oil and food both exploded by several hundred
percent in a matter of months. That mid-1970s 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 percent 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 percent 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 percent 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 percent of all cars have �flexi-fuel� engines able
to switch from conventional gasoline to 100 percent bio-fuel or any mix.
Bio-fuel production has become one of Brazil�s major export industries as well.
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 percent less energy per gallon than normal gasoline, translating into
a loss in fuel economy per gallon of at least 25 percent over gasoline for an
Ethanol E-85 percent 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 percent 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 percent. 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 percent,
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 percent 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 percent of gasoline and 6 percent of diesel needs. He notes
that though one-fifth of last year�s corn harvest went to bio-ethanol, it met a
mere 3 percent of energy needs. But the farmland is converting at a record
pace. In 2006 more than 50 percent 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 percent 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 percent, a foolish demand that will set aside 18 percent 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 percent 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 1970s. 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 percent 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 percent 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,
was rising.
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
percent as a result.
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 of food.�
In the mid-1970s Secretary of State Henry Kissinger, a
prot�g� 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.
� 2007 F. William Engdahl
Previously published in Financial Sense
F.
William Engdahl is author of the book, �A Century of War: Anglo-American
Oil Politics and the New World Order,� Pluto Press Ltd. He has a soon-to-be
published book on GMO titled, �Seeds of Destruction: The Hidden Political
Agenda Behind GMO.� He may be contacted through his website, www.engdahl.oilgeopolitics.net.