What is the impact on you?
Ethanol detractors are lined up across the country, blaming it for the increased cost of retail food, livestock feed and fertilizer, as well as soil erosion and water pollution. On the other side, Bob Young, chief economist at the American Farm Bureau, claims that ethanol is keeping our gas prices lower and keeping American dollars in the country. Young says, “Studies show that gas prices are about 15 percent lower than they would be without ethanol. Ethanol is providing upwards of 6 to 7 percent of our fuel supply. Without it, there would be a pretty significant price pop.” Americans will be sending OPEC about $1 to $1.5 trillion dollars this year, he says. Without ethanol, he believes we would be sending more.
Ethanol satisfies federal and state biofuel requirements, including the 2005 Energy Policy Act that called for 7.5 billion gallons of renewable fuels to be used in gasoline by 2012. It’s also an alternative to MTBE, the fuel additive that has been shown to contaminate groundwater.
At least for now, the ethanol boom is on. U.S. ethanol production climbed to almost 5 billion gallons in 2006, up nearly 1 billion gallons from 2005, according to a report by the USDA Economic Research Service in May 2007. Production is expected to top 10 billion gallons by the end of 2009.
Ethanol facts and figures
Most ethanol used as a gas additive in the United States is made by fermenting and distilling the simple sugars of edible crops such as corn, sugar cane, beets and sorghum. Ethanol can also be made from cellulose, a major component of vegetation. Current sources of cellulose include agricultural waste, forestry and food processing, trees and grasses. Cellulosic ethanol requires a large amount of processing and is too expensive to produce on a commercial scale, but researchers are working on new technologies to make it more economically viable.
“Probably better than 90 percent of ethanol (in the United States) comes from corn,” Young says. Most of the rest comes from wheat and sorghum. In the last three or four years, the increased demand for ethanol and increased corn exports have led to an increase in the price of corn. It has almost tripled, going from less than $2 per bushel in 2005 to $3.40 per bushel in 2007. It was trading at $5.89 in July, he says. Until 2008, farmers were increasing the amount of acreage they planted with corn, often planting it instead of soybeans or cotton. In 2007, they planted nearly 93 million acres in corn, an 18.6 percent increase from 2006. In 2008, however, the amount of corn acreage declined to around 84 or 85 million acres in response to a higher soybean price the previous fall.
The percentage of corn crop being used to produce ethanol increases each year. In 2006, 14 percent of the U.S. corn crop went to ethanol production. In 2007, it increased to 19 percent, or more than 2 billion bushels. Because the corn crop is smaller this year, Young expects it to be in the 23 to 24 percent range. Ethanol is affecting more than the amount of corn acreage and the cost of corn and similar crops, such as soybeans. It’s also having an effect on fruit, vegetable and nut growers, in terms of fertilizer, pesticide, retail food and gas costs.
Farm incomes and expenses
“The last five or six years have been an amazing story for agriculture,” Young says. “It’s in a state of flux.” In 2002, a total of $220 billion in total cash receipts went to agriculture, split almost 50-50 between crops and livestock. In 2008 it’s likely to be near $360 billion with a similar split. “To ramp up that fast is just amazing,” he says. On the other hand, in the past three or four years there’s been a threefold jump in input costs. In 2009, farmers will probably spend around $260 billion in input costs, he says. All costs will at least double. In 2008, incomes will probably be down relative to 2007 because of those costs, he says.
The cost of fertilizer has increased dramatically, in large part because the cost of nitrogen, a major component of fertilizer, almost doubled between 2007 and 2008, according to David Pimentel, a professor of ecology and agriculture at Cornell University. His involvement with ethanol goes back to 1979 when he chaired an advisory committee to look at ethanol as a gasoline alternative for the U.S. Department of Energy. “The increase in the cost of fertilizer is due largely to a shortage of natural gas, because of worldwide demand,” he says. “Nitrogen is made primarily from natural gas. Corn production uses more nitrogen than any other crop in the nation. That demand increases the price of fertilizer.” Corn also uses more pesticides and herbicides than other crops, Pimentel says, and the increased demand for them has raised their prices as well.
The good news for growers is that a byproduct of ethanol processing can be used as mulch, according to the USDA Agricultural Research Service. In 2005, a Roma tomato test plot treated with distillers’ dried grains yielded 226 pounds of tomatoes; an untreated test plot yielded 149 pounds. When the grains were incorporated into the soil and left to decompose for a few months, they suppressed weed seeds and promoted the growth of Kentucky bluegrass.
Retail food prices have increased in the last few years, according to the Consumer Price Index. From 2007 to 2008, prices of cereals and baked goods increased 15.5 percent, and meats, poultry, fish and eggs rose 5.2 percent. Wheat and soybean prices are also increasing. The May 2007 ERS report predicted farmers will be selling off some of their livestock during the next decade because of the increase in corn prices, and retail prices of meat and dairy products will rise as fewer red meats, poultry and eggs become available to the retail market. The report cites additional reasons for the increase in retail food prices, including strong global demand for U.S. commodities, higher energy prices, and even the cost of processing and packaging the products.
E85, a blend of 85 percent gas and 15 percent ethanol, has about 27 percent less energy per gallon than 100 percent gas, according to the U.S. Department of Energy, so mileage is lower. If E85 is priced lower than gas, the cost per mile is comparable, but according to the State Energy Conservation Office in Texas, even with its tax incentives, ethanol is often more expensive than gas.
An interesting idea for fruit growers is that it may be practical to produce ethanol from fruit culls. As long ago as 1981, a study found that culled fruit could be converted to ethanol to provide some on-site energy for plant processing needs. According to the USDA ARS, researchers have developed a new process for making ethanol from citrus peels and found that commercial production is economically feasible. Researchers are also looking into waste from the harvesting and processing of cranberries. Other potential sources include waste from watermelons, peaches and pineapples.
Because so many of the inputs in growing, producing and transporting corn ethanol are oil-based, the price of ethanol tends to rise with the price of oil. Ethanol will probably always have to be transported by trucks, trains or barges, because it picks up water and impurities when transferred through pipelines. Ethanol feedstock that’s grown, produced and sold locally wouldn’t have to be transported over long distances. Says Young, “All of this at the end of the day gets back to energy.”
The author is a freelance writer and frequent contributor to Moose River Media based in Altadena, Calif.