Ethanol Fantasy Fuels a Food-Price Nightmare Commentary by John M. Berry May 8 (Bloomberg) -- Last year, U.S. farmers planted the most land with corn in any year since World War II, and it wasn't enough. Demand for corn rose faster than the size of the crop, boosting the price to about $6 a bushel from $4. A fourth of the entire crop, the largest in history, is being devoted to produce ethanol, mainly for use as a fuel additive in the U.S. This year's crop is going to be smaller while ethanol production surges because of federal law mandating greater use of biofuels. The next president and Congress need to change that law because the U.S. has run out of land on which to grow more corn. The jump in corn prices has already pushed up the cost of a wide range of foods, including poultry, eggs and soft drinks, which use high-fructose corn syrup as a sweetener. Higher ethanol production wasn't the only reason for the surge in demand for corn and the consequent impact on food costs. Soaring oil prices and droughts in Australia and some other countries are also partly to blame. This year, corn-based ethanol production is expected to consume more than 3 billion bushels, topping the volume of exports for the first time. This use of food for fuel is happening purely because federal laws passed in 2005 and 2007 mandate increased use of ethanol and a 51-cent a gallon federal subsidy to make that use affordable. Lowered Subsidy A new farm bill nearing passage in Congress may reduce that subsidy by as much as 6 cents a gallon. The Energy Information Administration forecasts that ethanol production will rise this year by about a third, to more than 8 billion gallons, and to more than 14 billion gallons by 2016. Given the impact on food prices, the nation can't afford the current level of ethanol use. And there literally isn't enough arable land to grow the corn needed to supply the mandated increases. The ethanol fantasy has from the beginning been based on the misguided notion that the U.S. dependence on imported oil could be reduced -- or some claimed energy independence could be achieved -- by growing the country's fuel. Of course, the real point of the program has always been to increase farm income. By that standard, it has been wildly successful. Unfortunately for ethanol adherents, the sharp increase in food prices around the world in recent months has highlighted the limits on crop production in the U.S. and the foolishness of the mandates for ever-higher use of biofuels. Shift to Soybeans Joseph Glauber, chief economist for the U.S. Agriculture Department, told a Joint Economic Committee hearing on May 1, that even with corn prices as high as they are, farmers are likely to plant fewer acres with corn this year so they can increase soybean production. Soybean prices are also sky-high, and that crop is less expensive to plant than corn, which requires lots of fertilizer and fuel to plant and harvest. In addition, wet, cold weather in the Midwest has delayed corn planting, which might further reduce the size of the corn crop. Meanwhile, wheat farmers are also increasing their planted acreage because wheat prices, at $8 a bushel, are two-thirds higher than they were a year ago. Wheat, corn and soybeans can't necessarily all be grown in the same places. Nevertheless, it's clear that just about all the U.S. land that can be cultivated is being planted. Even some marginal land that farmers have set aside in conservation programs is being planted again. Won't Happen So where is all the corn going to come from to allow ethanol production to increase as the Energy Information Administration predicts? The answer is nowhere. Agricultural interests are sure to fight any weakening of the usage mandates in the Energy Independence and Security Act of 2007, which became law in December. According to that law, at least 36 billion gallons of biofuels are required to be added to gasoline by 2022, up from 4.7 billion gallons last year. Some 21 billion gallons must come from some source other than corn, such as sugar, cellulose or grass. That would still mean use of as much as 15 billion gallons of ethanol from corn, almost double the amount expected to be produced this year. The farm lobby is going to have to explain where all that corn would come from and what the impact on food prices would be. One step that might be taken would be to reduce or eliminate the 54-cent a gallon tariff imposed on imported ethanol. Brazil, which is expanding its sugar-cane production to make ethanol, could export a considerable amount of ethanol to the U.S. if the tariff were removed. That action alone would probably halt the rapid expansion of ethanol production pending elimination of the usage mandates. Nothing much is likely to happen until after this year's elections even as food prices keep rising. Next year should be different, provided the new president has the nerve to take on the farm lobby. (John M. Berry is a Bloomberg News columnist. The opinions expressed are his own.) To contact the writer of this column: John M. Berry in Washington at jberry5@bloomberg.net