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Last Updated: Monday, 17 December 2007, 23:55 GMT
Corn's key role as food and fuel
By Adam Brookes
BBC News, Iowa

The price of food is on the rise. On the Chicago markets, the price of a bushel of wheat has gone over $10 for the first time. Soybeans are at a 34-year high. And corn is hitting new highs as well.

An ear of corn on a farm near Arlington, Iowa (file pic)
Corn prices have doubled over the past two years, the IMF says

The International Monetary Fund says that over the past 12 months, "the world has experienced a substantial inflationary shock in the form of higher food prices".

Simon Johnson, chief economist at the IMF, points to three factors as responsible for the spike in prices.

First, increased demand from emerging economies like India and China, where consumers are demanding more calories in their diet.

Second, weather. Droughts have had an impact in some parts of the world.

But third is the contentious relationship between food and fuel. And to understand this relationship, it pays to look at corn.

Corn prices, according to the IMF, have doubled over the past two years. And in significant part, that is due to demand for the biofuel, ethanol, and the way in which ethanol policy is made in the United States.

"Corn has become all things to all people," says Simon Johnson. "It used to be fuel for people. Now it's fuel for cars."

Unintended consequences

Making biofuels for our cars from corn is now big business.

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At the Lincolnway Energy Plant in Ames, Iowa, truck after truck unloads vast quantities of corn. This plant is, in essence, a gigantic still. And it turns out 50 million gallons of ethanol every year.

Mix ethanol with petrol, say its makers, and you get a fuel which lowers harmful emissions and reduces dependence on imported oil.

The IMF applauds the desire to diversify fuel sources, and to find renewable sources of energy.

But, says Simon Johnson: "The law of unintended consequences is in effect. When we increase demand for biofuels to create ethanol to mix with our gasoline to drive our cars in the United States, that is increasing demand for corn.

Ethanol storage tanks near Central City, Nebraska
Ethanol has become a key corn product

"It's causing the price of corn to go up and that affects both corn prices and other food prices in the United States. But affecting them in the United States is the same thing as affecting them globally."

Larsson Dunn, a former chemistry professor who runs the Lincolnway ethanol plant, argues that Iowa, and US agriculture, are fertile and technologically advanced enough to meet demand for food and fuel.

"We have the most efficient farmers and some of the best farmland in the world in the Midwest. So we're able to efficiently produce enough grain for food and produce surpluses for fuels."

Alternative uses

Because corn is such an important ingredient in our food supply, higher corn prices mean higher prices for all sorts of things you might not expect.

Prize-winning corn at the 2007 Iowa State Fair
We believe we can have both food and fuel
Larry Johnson,
Center for Crops Utilisation Research, Iowa State University

We stopped for breakfast at The Cafe in Ames, Iowa, where they cook a wonderful plate of steak and eggs.

On the plate you see how important corn is to our diet. Corn pancakes; steak from cattle fed on tons of corn; tomato ketchup flavoured with corn syrup; and an egg - whose yolk is turned a rich yellow by feeding the chicken corn products.

And the alternative uses of corn go way beyond biofuels.

At Iowa State University, scientists are pulling this grain apart and finding that its chemical constituents can make all sorts of things.

Larry Johnson, director of the Center for Crops Utilisation Research at Iowa State, showed us paper finished with corn-derived chemicals, charcoal briquettes bound with corn products, even a shirt woven from a corn-based fibre.

And he, too, believes there is no tension between food and fuel.

"We believe we can have both food and fuel," he says. "These things are totally compatible with each other, and we are going to devise new cropping systems that are going to allow us to do that as well."

US subsidies

In the coming years, say the experts, other crops - sugar cane, switchgrass, jatropha trees - may well grow into potent sources of renewable fuels.

A combine harvester on a farm in Iowa
Higher corn prices lead to price rises for other products

But, says the IMF, those crops - many of which are grown in developing countries - will make slow headway as a source of renewable fuels while ethanol policy in the United States remains the way it is.

The US government offers generous financial subsidies to companies that blend ethanol and petrol, and has placed obstacles in the way of cheaper ethanol imports.

"Industrial countries," writes Simon Johnson, "need to seize this moment and eliminate subsidies."

Allowing freer trade in biofuels should, he says, help agricultural sectors everywhere.

But more people in more countries are now seeking more and better food. And if we want biofuels too, we may have to expect higher food prices.

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