U.S. should alter its biofuel policies, as competition for country's corn crop will only intensify with global food supplies in question, FAO says

LOS ANGELES , August 13, 2012 (Industry Intelligence Inc.) – The U.S. should temporarily suspend its Renewable Fuels Standard (RFS), which requires U.S. fuel companies to have gasoline pools comprised of 9% ethanol this year, because of concerns relating to the global food supply, according to an Aug. 10 statement by the United Nations’ Food and Agriculture Organization, Reuters reported the same day.



In order to meet the RFS this year, roughly 40% of the domestic corn crop will have to be converted into ethanol.



Competition for the U.S. corn crop, which has been damaged by the worst drought in 56 years, will only intensify, predicted FAO's Director-General Jose Graziano Da Silva in an Aug. 10 Financial Times article.



Using grain for food should be prioritized over its use for fuel, Graziano Da Silva wrote. Temporarily suspending the mandate would free up more corn for animal feed and food, he added.



FAO's Trade and Markets Division Director David Hallam told Reuters that the flexibility of biofuels policies must be increased in order to help stave off the development of new food crises.



Food prices rose 6% in July, according to FAO’s food price index.



Globally, there is a concern drought conditions around the world and in particular the U.S. Midwest could create a situation similar to the 2007/2008 food crisis. During this period, high food prices led to violent protests in a number of countries including Cameroon, Egypt and Haiti.



A number of other groups or individuals including domestic livestock producers, who were the first to ask for governmental relief for rising food costs, have called upon the U.S. Environmental Protection Agency (EPA) to adjust the RFS mandate. During the week of Aug. 13, 25 U.S. Senators urged the EPA to alter the mandate.



Cargill Inc. CEO Greg Page said that the use of biofuels should be dictated by the free market.



The EPA has not received an official waiver petition, which, according to legislation, can only be submitted by a state government or a fuel blender.



Politicians from the U.S. Farm Belt strongly support the RFS mandate. Some RFS supports say suspending it would have very little effect upon demand.



Temporarily suspending the RFS could have a number of unintended effects including damaging the market for dried distillers' grains—an ethanol byproduct—and reducing investment in advanced biofuels that could reduce biofuels’ reliance on grain crops.



The primary source of this article is Reuters, London, England, on Aug. 10, 2012.

