Ethanol Doesn’t “Feel Good” When You’re Starving

In 2008, the year when corn ethanol joined the ranks of alternative fuels in a big way, agribusiness giant Archer Daniels Midland Corporation (ADM – $44.86) was the largest ethanol producer in the U.S., with seven plants in five states making over a billion gallons of ethanol.

ADM – which bills itself as a partner to farmers – ranks 10th on the list of the top-100 corporate polluters, has incurred over $208 million in violations as a government contractor, and is number 17 on the top-20 list of Republican Party donors.

In 2002, an environmental organization charged ADM with surreptitiously exporting genetically-modified (GMO) corn into Mexico under the North American Free Trade Agreement (NAFTA), causing the contamination of previously pure strains of Mexican maize. Others say ADM is a corporate freeloader, benefiting from U.S. government subsidies made on the backs of third-world economies; a 1995 study by the Cato Institute supports these accusations. Federal subsidies for sugar, ethanol and grain exports account for 43 percent of ADM’s annual profit and cost American consumers $10 for every dollar ADM makes from sweeteners, and $30 for every dollar ADM gets from ethanol.

Ethanol, a biofuel made typically from corn, has a slightly positive energy balance. It takes 750,000 BTUs of fossil fuel to make one million BTUs of ethanol; it takes 1.2 million BTUs of fossil fuel to make the same amount of gasoline.

Ethanol also has a positive greenhouse-gas emissions balance of about 20 percent, according to the Department of Energy (DOE). This is equivalent to taking about a million cars off U.S. roads. Unfortunately, three of ADM’s largest plants are coal-fired, and produce about 16 percent of U.S. ethanol, which leaves only a 4-percent emissions gain overall. Factor in the likelihood that all future plants will be coal-fired (due to the cost of natural gas and the availability of coal), and ethanol’s green status turns red. Add the fact that 70 percent of ethanol plants are located in economically depressed areas – preying on those too poor to move away – and ethanol becomes a sustainability issue as well.

In November of 2007, ADM reported an unanticipated quarterly profit, citing earnings from its other divisions, which offset losses from ethanol production. Declining ethanol profits are the result of higher corn prices and lower prices at the pump, yet ADM continues to expand ethanol production. Why? Because the government subsidies mentioned previously – the only real incentive behind ethanol – make different reporting modalities both possible and profitable.

Ethanol is also responsible for rising food costs. Last year, The Economist noted that U.S. food prices had jumped 75% in two years, spiking the food-price index – created in 1845 – to an all-time high. At the same time, the International Grains Council noted a 60-million-ton shortfall in grain supplies, half of which resulted from increased ethanol production (the other half attributed to increased consumption in China and India). Corn, as tortillas, is a dietary mainstay among Mexico’s poor, accounting for 50 percent of their diet, 70 percent of calcium intake, and 40 percent of their protein requirement. Yet in 2007, the price of a tortilla in Mexico more than doubled, putting parts of the population at risk for malnutrition.

The Renewable Fuels Association (or R.F.A., the trade association of the U.S. fuel-ethanol industry) – of which ADM is a part – denies this charge, stating that ethanol is not the cause of food price inflation, but the evidence says otherwise.

Ethanol has been described as a “feel good” policy, allowing those of us in industrialized nations to continue driving our SUVs and still call ourselves environmentally responsible. It won’t feel nearly as good when food becomes unaffordable, as it already has in third-world countries like Mexico.

(Author’s note: This article appeared in January of 2008 in the now-defunct ethical investing magazine The Panelist)

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