Corn prices reached a 10-year high yesterday for the second successive day when they touched $4.31 a bushel, up five cents. This increase, at the same time when oil prices are at the same level they were a year ago confirms doubts raised by biofuels critics.
But the doubling of the price of corn, a main feedstock for US ethanol producers, over the past year at a time when oil prices are at the same level they were 12 months ago has raised questions over the viability of the biofuels industry without heavy government support.
High grain prices create problems for biofuels companies which produce ethanol from wheat and barley. Other biofuels companies make biodiesel from oil-bearing crops such as soya, peanuts, palm oil and rapeseed. The prices for most of these commodities have also risen sharply, reflecting the competittion between demand for these crops as food and demand for them to produce fuel.
The price rises have raised questions in the industry about its viability in the absence of government subsidies. In the UK, the high price of animal feed stock has been one of the problems afflicting Biofuel Corporation a biodiesel company. The company has reported that its main plant is producing biodiesel at less than half its full capacity.
George Bush used his State of the Union speech last month to confirm that ethanol and alternative fuel output in the US was due to reach 35bn gallons a year by 2017. In Europe, the European Commission set a target of 10 per cent of road transport fuels to come from biofuels by 2020.
The Financial Times has reported that concerns over biofuels supply have prompted the US to start discussions with Brazil over ways to create a global market for biofuels by promoting common standards. Mr Bush will meet Brazil's President Luiz Inácio Lula da Silva in March. But the US has so far refused to budge from its tariff of 54 cents a gallon imposed on ethanol imports into the US. Brazil is the world's biggest producer of ethanol, and its industry will be unaffected by high grain prices because its producers use sugar cane rather than wheat.
Brazilian companies have been repeatedly accused of illegally clearing rainforest to plant crops for biofuel production.
This month's issue of the Ecologist, available in newsagents now, features a 19-page special report on biofuels. To subscribe to the magazine, click here.
This article first appeared in the Ecologist February 2007
