FOOD CRISIS

Today on Listen Up – the Global Food Crisis. As food prices climb, millions around the world are pushed deeper into poverty and hunger.

It’s been called “the silent tsunami.” A crisis unprecedented in the last half century. Food prices are going up. And while that may represent an inconvenience to most of us in the wealthy West, for the already poor, it can mean catastrophe. Today, we'll uncover some of the causes of the crisis and explore solutions, as we seek a Christian response.

THE CONTEXT

Canadians typically spend only one-tenth of their income on food. Not so, the bottom billion of the world’s poor, who live on a dollar a day or less. They normally spend from 60 to 75 percent of their incomes on food. So when prices soar, even the basics become unaffordable.

And prices have skyrocketed. Prices of nearly all food commodities have risen since the beginning of the year. Wheat alone has gone up by more than 130 percent. More than 3-dozen countries are in crisis. And calls for action are gaining momentum after riots in Haiti, Pakistan, Egypt and the Philippines as families struggle to feed themselves.

THE GUESTS

Andrew Heintzman
www.sustainableprosperity.ca

Andrew Heintzman understands our global food crisis – he and Evan Solomon have compiled a book called “Feeding the Future.” We caught up with Andrew in Toronto.

Toronto Food Share
www.foodshare.net

As food prices rise here at home, some families seem almost not to notice. Others adjust by changing their diets – resorting to cheaper, less nutritious foods. But there’s also a growing move to revitalize local food economies. Melinda Estabrooks paid a visit to the Toronto Food Share, for a picture of what that looks like.

Bruce Chandler
www.collingwoodethanol.com

Using food sources to make fuels, like ethanol, has come under tough criticism for contributing to rising prices and market shortages. The criticism matters deeply to the Christian view that we are each other’s keeper. Here’s how one Christian who produces ethanol tackles the problem.

Ethanol’s Helpful Approach to the Food Crisis – from Collingwood Ethanol

This paper was prepared for members of the Environment and Sustainable Development Committee in response to discussion over biofuels’ role in the food vs. fuel debate. What follows is our perspective on the debate and then a response to a debate paper between Oxfam Canada and the Canadian Renewable Fuels Association, which was released by Oxfam Canada on May 5th, 2008.- used by permission

The world has been rocked in the recent months with escalating prices in a variety of commodities that affects everyone on earth. Record pricing in oil, rising prices on cement, steel, natural gas and virtually all food stocks have caused concern around the globe. Ethanol and biofuels have, unfortunately and incorrectly, been blamed as the primary cause of this global problem. We are optimistic that the information contained in this paper will be helpful in properly assessing the situation.

Discussion papers regarding biofuels have been sent to Members of Parliament by many groups including the Canadian Renewable Fuels Association and Oxfam Canada. Oxfam Canada has weighed in on this debate, largely drawing its arguments from a paper issued by Oxfam International in November, 2007 entitled, “Bio-fuelling Poverty: Why the EU renewable-fuel target may be disastrous for poor people”. It is important to note that Oxfam International uses the words “may be disastrous”, as opposed to “will”. In its paper Oxfam International discusses the social principles that are needed to ensure biofuels offer new market and livelihood opportunities to poor southern hemisphere countries, while cleaning the air in the northern hemisphere countries. Oxfam Canada, however, seems to have taken a different tact by demeaning biofuels’ proven pollution-reducing properties and blaming them for singularly causing a global food crisis.

We contend that when one takes into account the value of Distillers’ Dried Grains and Solubles (DDGS), the main co-product generated in ethanol production as livestock feed, the starch in corn that goes into the production of ethanol does not have significant impact on global food production supply. We maintain that rising demand in the developing world, particularly China and India, is the driver behind increasing food prices.

The other items we highlight in this paper are;
• The starch component of wheat and corn are the fermentable components of the grain. The remaining portion is protein which is a highly sought after protein feed for livestock called distillers’ dried grains and solubles (DDGS).
• DDGS production has increased in step with ethanol production, meaning the protein quantities available from corn for livestock feed are indifferent to ethanol production
• Protein demand by humans in developing countries, particularly in China and India, has increased dramatically in recent years. This increased demand along with rapid growth of an already large population, has driven up the price of all the world’s commodities, not just agricultural ones.
• Biofuels production has increased the demand for corn, wheat, soybean and canola but is not the culprit behind recent food shortages in developing, highly populated nations; explosive population growth and higher protein diets are.
• In light of the above, it is becoming increasingly apparent just how important it is for highly-developed nations like Canada to promote politically and socially stable institutions in developing countries. In order to ensure the world can feed itself in the future, impediments to small-scale farming and investments into agricultural must fade away.

Collingwood Ethanol Opening Comment:
The main item we see lacking from the current food vs. fuel debate is that neither party has recognized that corn does not make ethanol; starch or sugar, broken down into glucose does. So immediately we have to understand what happens to this starch when we pull it out of the food chain and put it towards ethanol production. This question can be uniquely answered by our company which operates a corn wet mill.

What is a corn wet mill?
A corn wet mill fractionates the corn kernel into its 4 constituents: starch, corn germ, fibre (the shell of the corn kernel) and corn meal (corn meal makes corn yellow):

• Corn germ is crushed and makes corn oil.
• Fibre is cellulose and is often referred to as ‘corn feed’ as it is a low-protein (20% protein) feed product for cattle and other livestock.
• Corn meal is very high protein (>60%) and is also used to feed cattle and livestock; it is also used in both human and pet food.

As well, because a corn wet milling ethanol plant sends through a very clean stream of starch to fermentation, the yeast that is propagated to ferment starch can be retrieved. Yeast is another high-protein feed (50%) that is very robust in amino acids and is used in human, livestock and pet food.

Starch from a traditional corn wet mill is used to make specialty starches such as dextrose (baked goods, coffee sweetener, canned fruits, cheese spreads, jams and jellies), high fructose corn syrup (soda pop, fruit fillings) and baked goods. Corn starch is also used in many highly specialized industrial applications (adhesives, spark plugs, wallpaper and wallboard, paper products, pharmaceuticals), albeit in relatively small quantities.

The corn wet milling industry, at least in Canada, is experiencing a change in the market which has been evolving over the past 5 years; a global decrease in demand for high fructose corn syrup, which is primarily used in soda pop. We believe this is symptomatic of a global trend moving away from sugary, carbonated beverages. As a result, starch is looking for new markets and prices have decreased.

What is a corn dry mill?
The vast majority of ethanol plants in North America are corn dry mills. A corn dry mill does not fractionate the corn kernel. It grinds the corn kernel and sends the “mash” to fermentation. In fermentation, the starch is fermented and the remaining components of the corn kernel (germ, fibre, meal), plus the yeast from fermentation, are harvested altogether as a mid-protein, high-energy feed product called Distillers’ Dried Grains and Solubles (DDGS). Once again, only starch is fermented and made into ethanol. DDGS are sold into all facets of the livestock market and are often pelletized for easier shipment into overseas agricultural markets.

Protein and starch:
As a consequence of the North American ethanol industry, the starch component of the corn kernel has likely decreased in global supply, but the protein portion (DDGS) has increased dramatically. To be clear, the USDA reports that US Dried DGS production has jumped from 3.5 million tonnes in 2000 to 17 million tonnes in 2007. This figure does not account for Wet DGS, which are sold in a wet form and sold to feedlots local to ethanol plants.

So what?
Protein is a big deal. The Food and Agricultural Organization of the United Nations reports that from 1981 to 2001, the per-capita daily protein consumption in China increased from 54 grams to 82 grams, a 52% increase. In light of the dramatic increase in Chinese incomes since 2001, that caloric consumption has grown appreciably. That’s a lot of protein considering China’s 1.3 billion population.

The Chinese experience was not singular in nature and India (1.1 billion), with its growing economy, has also seen a large increase in per-capita protein consumption (vegetarians still eat eggs, fish and dairy products; Muslims don’t eat pork but do eat meat).

World economies have historically grown as a result of a large middle class which drives the economy. This was not the case during the last century in Africa, Asia and India but this has dramatically changed in the last 10 years. One simply cannot ignore that when the economies of two countries representing 36% of the world’s population explode, demand will outstrip supply. This has occurred in the past four years in a variety of other commodities (cement, steel, oil) as a result of the growth in China and India and is now happening in food commodities.

We believe that these large increases in the middle class and corresponding protein demand have had the overwhelmingly greatest impact on global food prices and the biofuels’ food vs. fuel debate has become a convenient scapegoat.

The following are our comments to the debate between the CRFA and Oxfam. Please find attached the respective arguments from the two groups.

1.CRFA Assertion: There are no credible scientific studies to back up any of Oxfam Canada's statements on biofuels. Oxfam has no biofuels expertise or scientific studies of its own in regard to the biofuels industry in Canada.

Oxfam Response: There are countless peer-reviewed scientific papers which show that biofuels produced under the conditions that prevail in Canada will accelerate climate change. One such paper was published this year by Nobel Laureate Paul Crutzen and colleagues, who investigated emissions of nitrous oxide, a greenhouse gas 296 times more potent than carbon dioxide, released through the decomposition of nitrogen-based fertilizers commonly used in the production of corn destined for ethanol and canola destined for biodiesel. They found release rates for the gas were typically three to five times higher than had been assumed in earlier lifecycle analyses, tilting the cost-benefit balance against the use of biofuels produced from corn or canola.

Collingwood Ethanol comment:
We would suggest that Oxfam Canada produce these countless scientific papers showing that biofuels accelerate climate change. Ethanol is an oxygenate and has a very high octane rating. An oxygenate cleans up tailpipe emissions by more completely combusting gasoline. This helps to reduce smog and volatile organic compounds in our air, and in our cities, in particular.

In addition Oxfam also stated:
“…who investigated emissions of nitrous oxide, a greenhouse gas 296 times more potent than carbon dioxide, released through the decomposition of nitrogen-based fertilizers commonly used in the production of corn destined for ethanol and canola destined for biodiesel.”

Is there a difference between corn destined for ethanol production and any other corn? The corn is going to be grown regardless, making this argument moot.

2.CRFA Assertion: Oil and gas prices are up 100 per cent in one year. Oil at over $100/barrel has a disproportionately negative impact on the developing world, where annual incomes are dramatically lower than in the developed world.

Oxfam Response: We would agree that the soaring price of oil represents a huge barrier to development in the global South but there is no evidence to suggest the solution to this challenge lies in deep subsidies to promote accelerated production of biofuels in the industrialized North.

Collingwood Ethanol comment:
Oxfam’s suggestion that biofuels was thought to be the solution to development barriers in the global South is phenomenal. Instead, the CRFA is implying that catapulting oil prices have had an enormous effect on much more than transportation costs, particularly in the developing world.

Bill C33 is proposing a 5% blend of ethanol or biodiesel in transportation fuel to decrease emissions from motor vehicles in Canada, not as a panacea for the global South, as Oxfam suggest.

Furthermore, deep subsidies are not what Canada is promising. The government is helping to jump start the biofuels industry, a policy that has helped a variety of new business technologies in Canada. Canada’s ecoEnergy for Biofuels Program guarantees that operating assistance appears only when agricultural prices are high and biofuels prices are low.

3.CRFA Assertion: The price of rice is at an all-time record high. Rice has no relation to biofuels production, as biofuels are not made with rice, and corn is not grown in rice paddies.

Oxfam Response: Food prices in general are at record levels. The IMF estimates biofuel demand explains 20 to 30 per cent of recent food price rises. Prices have a knock-on impact from one commodity to another due to substitution and allocation effects within global agriculture. The prices of food stuffs do not move in isolation. Moreover, in many countries including Indonesia the price of rice has risen as lands that had been dedicated to rice production are diverted to biofuel production.

Collingwood Ethanol comment:
We agree with Oxfam that there is a definite long-term correlation of all food prices but disagree with the IMF assertion about biofuels’ impact on food price rise. As mentioned previously, when people by the hundreds of millions switch from a diet of rice and bread to three meals a day, their protein consumption rises rapidly; prices have inevitably followed.

Protectionist food measures by many grain producing countries exacerbate an already difficult problem and drive food commodities even higher. In January, Russia quintupled the duty on wheat exports, while China has introduced a battery of new duties on wheat, soybeans and rice (FAO: Crop Prospects and Food Situation, February 2008). In addition, Argentina issued a decree in March increasing taxes on soybeans and grains, which have resulted in well-publicized strikes and blockades by Argentine farmers, who have effectively blocked exports for many of the country’s agricultural products.

4.CRFA Assertion: Countries such as Haiti have untapped biofuels potential in crops like sugarcane. Biofuels would help Haiti and other developing nations grow a sustainable economy and free them from the regressive over $100/barrel oil tax.

Oxfam Response: This may in certain countries and under certain conditions prove true. But the subsidy costs are huge as is the risk that small farmers will be displaced from their lands and that carbon sinks such as rainforest and peatlands will be lost. It should be noted that it has taken Brazil 30 years for its biofuels program to become self-sufficient and it collapsed in the 80s when the cost of subsidies became too great to bear. Moreover, it is naïve to suggest that biofuels production in Haiti or other countries in the global South would be restricted for local use. Market pressures will grow inexorably for low-cost biofuels production in the world’s poorest countries to be used to provide low cost biofuels for use in northern industrialized countries such as Canada. Over time this will mean that the temporarily high prices being enjoyed by Canadian farmers will plummet.

Collingwood Ethanol comment:
It’s a little hard for us to follow either argument in this case; both make highly speculative assumptions about the future. Oxfam’s comments about plunging Canadian agricultural prices due to low-cost southern biofuels seem particularly out of touch with biofuels policy in the US and Canada, which encourage local production from local feedstock. What we do know is that high agricultural prices translate to higher profits for Canadian farmers and decreased transfers from the government.

However, high agricultural prices do not necessarily mean higher incomes for farmers in developing nations due to political instability and land mismanagement; Haiti is a prime example. We believe Oxfam needs to continue focusing its efforts in this area, where the core problem remains the lack of sound institutional frameworks, without which both foreign agricultural investment and small-scale farming are stifled.

5.CRFA Assertion: Last year, the US produced a record amount of ethanol (8 billion gallons). In the same year where they produced a record amount of corn ethanol, they actually increased the amount of corn for export. In fact, they had so much corn, that after all of their corn commitments, the US had a 10 per cent corn surplus.

Oxfam Response: The ethanol program consumed a quarter of the entire corn harvest last year, and this year it is expected to consume close to a third. The IMF estimates that, along with the European Union, ethanol production accounted for half the increase in demand for food crops last year. The rising price of corn is also pushing up the price of other commodities, for example, as farmers switch from soy to corn.

Collingwood Ethanol comment:
It should be noted that the commodity trading markets largely associate consecutive wheat droughts in Australia and the Ukraine from 2004 to 2007, which saw production in these countries fall by as much as 80%, as the primary trigger for the 2007-08 agricultural commodity run. It should also be noted that the EU experienced a 20% drop in corn and wheat production in the same period due to droughts in some regions of the EU (see the USDA’s Foreign Agricultural Service Crop Explorer website for regional crop production by year). These droughts and production shortfalls are direct contributors to price increases.

No one can deny that there has been a global run on commodities. Gold and oil prices have traded at all time highs in recent months. All of these commodities are priced in US dollars, a commodity in its own right. The US dollar has been hammered in the past 24 months, losing much of its value over the Euro and other major currencies. As the dollar falls, US-dollar denominated commodities rise; that’s just simple economics.

6.CRFA Assertion: Over 80 per cent of the cost of food is marketing costs including energy and labour. Corn accounts for less than 5 per cent of the price of a box of corn flakes.

Oxfam Response: That farmers are not getting their fair share of the consumer price of foods is undisputed. But the poor of the global South don’t buy processed and packaged foods, so for them the impact of the biofuels boom on the spike in food prices is both dire and direct.

Collingwood Ethanol comment:
The theme in the last 3 arguments surround high food price. Once again, high agricultural prices have been sparked by a number of events such as high oil prices, droughts, a global run on all commodities and some blame may be laid upon increased biofuels production. But, by far the biggest contributor to high prices is rapidly rising global demand for food products and protein. As mentioned previously, the corn consumed by ethanol production still gives back its full value of protein to the food chain in form of DGS, feed, germ and corn meal.

7.CRFA Assertion: Government of Canada studies and the peer reviewed science is clear. Ethanol and biodiesel reduce harmful greenhouse gas emissions and air pollution, and have a positive energy balance.

Oxfam Response: Four years ago, this may have been the case. But further research and deeper analysis have discredited those early studies. No credible scientist would make this case today.

Collingwood Ethanol comment:
Oxfam’s comment is categorically incorrect and, in our view, erodes their credibility as a contributor to this debate.

Oxfam Closing comment:
Oxfam Canada has no financial or partisan stake in the biofuels debate. We raise these concerns because we are working day to day on the front lines around the world to confront the scourge of poverty and hunger and to help women and men, girls and boys protect their rights and build their capacity to thrive and prosper. We are committed to tackling the policies and the practices that create and perpetuate poverty and inequality, promoting alternatives that are environmentally and socially sustainable.

Collingwood Ethanol closing comment:
Oxfam’s contribution to the international aid is undisputed but we believe their efforts to dismantle the Canadian biofuels industry are misguided and misinformed. Oxfam is not an expert on energy nor in corn ethanol wet milling.

According to the USDA, the US produced 332 million tonnes of corn in 2007. In 2008, ethanol plants are expected to consume 30% of all US corn production, or approximately 100 million tonnes. This amount represents 10% of global coarse grains output (corn and other feed grains) and 5% of total global grains (see table below, made by the USDA Economic Research Service). What would happen if all 100 million tonnes were sent back to the food chain? Not much. The protein available for livestock consumption would not change; in place of DGS, corn and soybean meal would fill in the livestock protein feed requirement, basically leaving us in the same boat. In the instance that a fresh, unallocated 100 million bushels of corn came on-stream, the table below tells us that it would probably take about 3-4 years for the world to fully consume that fresh supply due to increasingly larger annual demand. So should Oxfam turn its attention to biofuels, which regardless of all the negative recent attention unequivocally cleans the products of combustion coming out of the tailpipe, or should we focus on stabilizing third world governments that currently act as agents to poverty and corruption? The real threat is that the food vs. fuel debate will take the public’s collective eye off the true culprit of third world poverty: the lack of stable political and institutional infrastructures.

Conclusion:
Taking into account the value of DDGS to livestock feed, the starch in corn that goes into the production of ethanol does not have significant impact on global food production supply. We maintain that rising demand in the developing world, particularly China and India, is the driver behind increasing food prices and decreasing ending stocks of grains. Consider the table above, looking at years 1999/00 to 2003/04: there was no biofuels boom during this period but ending stocks decreased 40% regardless, and have only fallen slightly since then.

We empathize and agree with Oxfam’s frustrations regarding international poverty. The shareholders of Collingwood Ethanol have been active in significantly funding a variety of African health and food issues for many years.