Today, with gas prices hovering around $4 per gallon, we are all becoming hyper aware of the effect petroleum has on our wallets, as well as on our environment. In response, there have been many efforts to drive the production of fuels without those harmful effects. In 2006, one man even created what he terms a “Frybrid,” propelling his VW Beetle through the power of – you guessed it – used McDonalds French fry oil.
Much more common however, is a type of Ethanol fuel which is derived from corn. Henry Ford called ethanol the “fuel of the future” and planned to run his Model T on it until oil, which was plentiful and cheap at the time, emerged as the dominant fuel. According to the Renewable Fuels Association, in 2010 worldwide ethanol fuel production reached 22.95 billion gallons, with the United States as the top producer with 13.2 billion gallons, accounting for 57.5 percent of global production. The benefits are clear: the U.S. has a seeming abundance of government subsidized corn, and turning that corn into a biofuel could help end our dependence on oil imports, boost our agriculture industry, and reduce environmental damage caused by burning fossil fuels.
However, after the documentary King Corn was released, there is no doubt that there is high demand for corn across many markets. With our interest in Consumer Packaged Goods, we know that corn and its derivatives is an ingredient found in many products. Ranchers also require corn, as an element of the feed they give their livestock. There is only so much acreage where we can grow corn. So what is more important: fuel or food?
Basic principles of economics are at work here. If more industries demand more corn, the price of that corn will have to increase. If each industry is buying corn at a higher price, then they will have to pass that higher price on to their customers at the pump, at the grocery store, and at the butcher.
In 2007, approximately a year after corn-based ethanol became such a hit, there were reports of food riots in Mexico due to rising prices of corn for tortillas, where corn meal prices shot up 60 percent.
However, these problems with corn-based ethanol production don’t stop just at the prices of corn alone. Because it is now more profitable than ever to grow corn, corn farmers are coming away from this situation with happily lined pockets and a smile on their faces. Many farmers who traditionally farmed other crops, seeing the wealth afforded by growing corn, are now planting corn exclusively. Problems with biodiversity aside, this shift also causes trouble in the CPG industry. For example, Heineken, the large international brewer, has also reported reduced profits due to the increasing use of corn grown in the U.S. Midwest for ethanol production, and the conversion of land for the farming of corn rather than barley.
So the question is: what is corn-based ethanol really costing the consumer? And is the benefit we are reaping from using it only possible through corn, and if so is it worth that cost?
