Stop ethanol production now, expert warns

With prices for corn rising sharply, production of ethanol should be stopped and the resources diverted to food before it's too late

  • By Phil Thornton
  • 10 Oct 2012
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The threat of an imminent outbreak of major global social unrest and rioting over high food prices has reached “boiling point”, and ethanol production must be stopped now, a leading expert has warned.

Professor Yaneer Bar-Yam of the New England Complex Systems Institute (NECSI) said the tight outlook for food production made it essential that ministers meeting in Tokyo for the annual IMF/World Bank meetings took action to mandate curbs on the amount of corn going into the production of ethanol, which he said has risen from a 15% share in 2004 to around half this year.

“Action has to be taken to ensure that ethanol production essentially stops,” he said in an interview. “That’s an astounding thing to say but there is little time to replenish stocks and ensure there is adequate supply.”

Policymakers must also make firm commitments to reduce financial speculation in commodity markets to help avert the risk of a repeat of the violence that broke out in Africa in 2008 and the unrest that led to the 2011 Arab Spring, he said.

Prices of staple crops such as wheat and corn have risen sharply in recent weeks. The food price index run by the UN Food and Agriculture Organization last week showed a 1.4% rise in September to 216 in the wake of the recent droughts.

Bar-Yam said the rise in wheat prices to 880 cents per bushel (¢/b) had pushed the cost above the level it reached ahead of the Arab Spring, while corn was at an “elevated” level. “The social stresses this causes are very high as this tends to lead to rise in food prices generally as well as these particular grains,” he said.

“Our analysis suggests we are right on the verge of the social unrest. The critical level of the food price index that suggests that violence breaks out is 210 and we are right there. The prices are in the range of instability and that’s quite serious.”

Bar-Yam said that the NECSI analysis shows there was only a small time lag between prices hitting critical levels and social unrest, although he stressed it was impossible to predict precisely as there could be any number of triggers for the onset of violence. “Because we are right at the boiling point, any spark could aggravate the situation,” he said.

Riots have already broken out recently in the Colombian capital Medellin while ethnic violence in Guinea left one person dead last month.

NECSI is not alone in issuing gloomy forecasts. Rabobank, the Dutch bank, recently published its own analysis, forecasting further rises in food prices well into the third quarter of 2013. Duke University professor Marc Bellemare has found a clear link between levels of food prices and social unrest over the two decades to 2011.

Economists are warning that food prices are set for further increases. Kona Haque, commodities analyst at Macquarie Capital, said that the July drought that swept through the US Midwest following earlier droughts in South America and the former Soviet Union had “scuppered” any chance of a supply recovery.

“This makes the grains and soy bean markets critically tight now,” she said. “We enter the 2012/13 season with fundamentally much tighter markets in corn, wheat and soy beans, which will require higher prices throughout 2012/13.”

He said the financial speculation was “exaggerating” the forces of supply and demand. “The food system is highly unstable and regulations on speculation need to be put into effect.”

The FAO yesterday said that 870 million people, or one in eight, were suffering from chronic undernourishment during the two years to 2012. It has changed its methodology so cannot compare the latest figures with previous years.

  • By Phil Thornton
  • 10 Oct 2012

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