Ethanol Backers, Critics Ratchet Up the Rhetoric

By LAUREN ETTERJuly 17, 2008;

The battle over biofuels heated up Wednesday as a Paris-based intergovernmental group criticized crop-based fuels for driving up food prices and ethanol supporters counterpunched.
The Organization for Economic Cooperation and Development said continued growth in biofuels production would push food prices higher and contribute to "food insecurity for the most vulnerable populations in developing countries," while having a "limited impact on reducing greenhouse gases and improving energy security."
The group's report also said policy makers seeking to reduce dependence on foreign oil and to lower energy prices should redirect their focus toward encouraging less energy consumption.
Separately, U.S. Federal Reserve Chairman Ben Bernanke said he believed that removing a tariff on imported ethanol "would be a good step to take." The U.S. imposes a 54-cent-a-gallon tariff on most imported ethanol. The U.S. government has required the oil industry to blend nine billion gallons of ethanol into the nation's gasoline supply this year and to increase that to 15 billion gallons by 2015.
Policy makers around the globe have been under mounting pressure to roll back incentives for biofuels production as food-price inflation cuts deeper into consumers' pockets amid higher oil prices and the U.S. credit crisis.
The U.S. Agriculture Department said it expects food prices to increase by up to 5.5% this year, the largest annual increase in 18 years. Last year, food prices rose 4%. Increases in many other countries, particularly developing ones, have been much higher, sparking riots in some places.
Ethanol producers say biofuels are being used as a scapegoat and that high oil prices are the bigger contributor to food-price inflation. On Wednesday a coalition of ethanol trade groups ran a one-page ad in the Financial Times newspaper slamming the president of the Organization of the Petroleum Exporting Countries for saying that "the intrusion of bioethanol on the market" is jacking up oil prices.
The trade groups, including the U.S.-based Renewable Fuels Association, said that ethanol is helping to keep gasoline prices lower at the pump and that "efforts to obfuscate and mislead the public about biofuels will do nothing to alleviate the energy crisis gripping the globe."
Grain prices have soared in response to a variety of factors, including increased demand for grain in China, India and other developing countries, and diversion of cropland to grow fuel.
The U.S. government says that biofuels accounted for up to 5% of the overall 4.8% rise in the consumer price index for all food for the first four months of 2008. Globally, biofuels have contributed up to 10% of the overall rise in food prices as measured by the International Monetary Fund's food-commodity price index, according to the U.S. government.
Corn prices softened a bit early this week, but Wednesday they crept back up amid concerns that hot, dry weather could hurt the U.S. corn crop. On the Chicago Board of Trade, the corn contract for September delivery closed at $6.58 a bushel.
The Agriculture Department is under pressure to allow farmers to plant crops on millions of acres set aside under the Conservation Reserve Program to protect sensitive habitats. An agency spokeswoman said an announcement on the CRP is expected "in the coming days."
Texas Gov. Rick Perry, at the urging of food companies and livestock producers, has asked the Environmental Protection Agency to temporarily waive the mandate that requires the oil industry to use nine billion gallons of ethanol. An EPA spokesman said the agency hopes to issue a decision by July 24.
Write to Lauren Etter at lauren.etter@wsj.com