Breaking America’s addiction to oil

A news conference was held introducing the Open Fuel Standard Act, which would require that starting in 2012, fifty percent of new automobiles, and starting in 2015, eighty percent of new automobiles, be flex fuel vehicles made to operate on gasoline, ethanol, and methanol. Sen. Sam Brownback (R-Kan.) began by saying that the U.S. urgently needs to lessen its dependence on foreign oil. Brownback said that the solution is an easy one which would require no need for new inventions, but simply a switch to flex fuel vehicles. He explained that this enhancement comes at a reasonable price and would only add $100 per vehicle during creation. Brownback said that this is the “way to do it” -- the way to start ending America’s addiction to oil.

Brownback explained that if more flex fuel vehicles were put out on the market, distribution would increase. He explained that the price of methanol is forty percent less than the current price of gasoline. Brownback also said that by giving Americans a choice between gasoline, methanol, and ethanol, the nation’s dependence on oil would most definitely lessen.

Senate Homeland Security and Government Affairs Chairman Joe Lieberman (I-Conn.) agreed with Brownback and said that mandating flex fuel vehicles is a very important step forward in breaking a long time dependence on foreign oil. Lieberman said that the U.S. spends $700 billion a year on foreign oil, a dependence that is weakening to the nation. He explained that the American public is angry and he hopes Congress is ready to take bold action.

Sen. Ken Salazar (D-Colo.) said that this act is not a Republican or Democratic agenda, but rather an American agenda. He called the act a “diamond in the rough” because it is a very possible solution to a great problem. Salazar said that mandating flex fuels would open the door for the “bio-fuel revolution.” He also said that he hopes, as the week unfolds, that Congress will be able to find “sweet spots” in the middle to unite the different parties and get bipartisan support.

Low corn yield equals expensive beef

Corn, apparently, is many things. It is animal feed, human food, and ethanol. I spoke with George Chadima in Fairfax, a farm owner near Cedar Rapids, Iowa. Excessive moisture has caused the nitrogen to be leeched from the soil, which is requiring farmers to buy biologically active fertilizer. The corn that was planted already has been “drowned” by water pooling in areas, and much of the rest was also damaged by a recent hailstorm. Crops, he said, would probably yield 75-80% of what they normally do.

I was shown a warehouse that housed large containers of soybeans yet to be planted. The planting schedule is three weeks behind already due to the weather, and hopefully, he said, they’ll be able to plant within the next couple of days. This is happening to many farmers in Iowa, and the result is going to mean higher prices- in everything.

Corn prices, of course, will go up, since using corn for “human food” or exporting it elsewhere, essentially removes corn from the chain of production. Ethanol, surprisingly, does not create that problem, because after the grain alcohol is removed there are still co-products from the corn, such as animal feed, plastics, and oils. The chain of production includes feeding that corn to animals, and then using the byproducts as fertilizer. Because it is costing more to harvest the corn, and there will be less of it, this will cause beef prices to rise.

Global food prices up 43 percent

The Senate Foreign Relations Committee held a hearing on “Responding to the Global Food Crisis,” focusing in particular on U.S. agricultural investment in foreign nations and how the development of corn-based ethanol and other biofuels have contributed to the rise in food prices.

Edward Lazear, chairman for the Council of Economic Advisors, said that global food inflation was 43 percent during the 12 months ending in March 2008. He emphasized that Americans spend less than 14 percent of total expenditures on food, while Africans spend about 43 percent and for the poorest populations in Sub-Saharan Africa subsisting on less than one dollar per day, this figure may be as high as 70 percent.

Lazear testified that wheat prices have increased 123 percent, soybeans 66 percent, corn 37 percent, and rice 36 percent. Emerging market consumption, he said, has increased by 45 percent from 2001 to 2007 compared to 1991 to 2000, and that this increase in demand accounts for about 18 percent of the rise in food prices. Other factors, he said, are adverse weather conditions that destroy crops and to a smaller degree, ethanol production. He said that the world’s ethanol production accounts for approximately 13 percent of this year’s 37 percent increase in corn prices, and since corn makes up a small fraction of the International Monetary Fund’s Global Food Index, it is responsible for only about 1.2 percent of the year’s 43 percent total global food price increase.

U.S. Agency for International Development Administrator Henrietta Fore testified that the world’s one billion poorest people are living on one U.S. dollar per day, and that while Africa and Asia suffer most from this kind of poverty, Haiti is also facing a crisis. She also said that three-quarters of the world’s poorest people living on less than 50 cents per day are located in Africa. She advocated changing trade policies that present barriers to food supply and said that U.S. agricultural investment would be “enormously positive.” She mentioned that “even short term hunger” can “unalterably” affect a child through increased risk for disease, cognitive and developmental malfunction, and early death.

Sen. Richard Lugar (R-IN) said that people in nearly 40 countries face food shortages and potential civil unrest as a result. In 1980, he said, agricultural projects accounted for 30 percent of World Bank spending, whereas in 2007 that number was less than 13 percent. Along with Chairman Joe Biden (D-DE), he called for a “second Green Revolution” to increase agricultural research, development, and investment in order to augment yield per acre of crops by improving techniques. He said such an initiative would “benefit developed and developing countries alike,” as would removing trade barriers and tariffs. He also said that ethanol research cannot be curtailed because of its contribution to food price increases because it would put additional pressure on oil prices, which he emphasized is already at $120 per barrel.