Page last updated at 21:58 GMT, Thursday, 5 June 2008 22:58 UK

Food versus fuel in corn heartland

By Jackson Hewett
BBC News, Iowa

Iowan corn farmers
Many farmers are enjoying the benefit of rising food prices

On a sunny spring day in Emmetsburg, north-west Iowa, Craig Brownlee is planting the last of his 25,000 acres.

Two thirds of his land will be planted with corn, the other third soybeans.

"We haven't seen prices like this since the mid 80's," he says.

That's because corn and soybeans have exploded in price in the last few years.

After years of getting by on government subsidies, he says his income has doubled or possibly tripled thanks to rapidly rising world demand for grain, and the expansion of America's biofuel industry.

Food versus fuel

Craig Brownlee, Iowan corn farmer
The real culprit as everybody knows is the price of fuel
Craig Brownlee, farmer

But he has very strong views about the food versus fuel debate.

He thinks that people who say that by sending his corn to an ethanol plant, he's causing people in the developing world to starve is a smear campaign.

"The real culprit, as everybody knows, is the price of fuel," he says.

"I think its incredible that oil companies can report hundreds of billions of dollars profit and it's business as usual. Farmers make a few bucks and the world's gonna starve all of a sudden"

There is no doubt, however, that ethanol production is causing a jump in the price of corn.

This year, between a quarter and third of America's corn crop will be refined into fuel.

But it's hard to find a consensus on exactly how much that is pushing up global food prices.

The US government says that biofuels only accounts for 3% of recent increases. On the other hand, British charity Oxfam says its more like 30%.

At POET's ethanol plant in Chancellor, South Dakota, the firm process up to 250 trucks of corn a day.

With 26 of the 150 ethanol refineries across the US, POET is the country's largest producer, turning out 1.5 billion gallons of ethanol last year.

The corn being unloaded today is dry and unappetising, not a surprise after nine months in storage. But it was never meant for human consumption.

Like the majority of America's corn, it's grown for animals.

At the POET plant, they'll convert 60 pounds of corn (a bushel) into three gallons of ethanol.

A third of the corn kernel can be refined into fuel. Another third will end up as high protein animal feed. The final third is released as carbon dioxide, which many ethanol companies sell to soft drink companies. It's the fizz in a can of soda.

Profitable ethanol

It's been a very profitable time for ethanol companies.

The US Government's has mandated that 10% of the nation's fuel must come from biofuels by 2015. To support that, every gallon of corn-based ethanol is subsidised by 51 cents.

POET earned around $4bn (2bn) in revenue last year. It says subsidies are crucial to help them compete against gasoline, and to promote investment in improved technology.

Worker at the POET ethanol plant
Ethanol producers are enjoying boom times

POET's chief executive Jeff Broin says the industry has been unfairly maligned by people who say using food for fuel is a "crime against humanity".

"I know there are a lot of people out there that would like you believe that," he says. "That's because they don't want ethanol to become the second fuel of America."

Mr Broin says that developments in seed technology could push up yields by 40% in the next 10 years, enough for another 15 billion gallons of ethanol, without taking away from the food supply.

What's more, he says, by raising the price of corn he's actually helping developing countries in the longer term.

"Subsidies in wealthy countries have thwarted the production of grain in developing countries. With a cap on the grain price, developing countries can develop a sustainable source of income from grain."

Price rollercoaster

You don't have to travel far from POET's South Dakota plant to see how those higher grain prices are hurting.

Iowa is not just the corn belt, it is also the country's largest producer of hogs.

Jay Clasing is feeding 1500 newly arrived baby piglets their first corn based meal.

With demand especially from China and other countries, we're looking at price rises of $50 to $60 per head
Jay Clasing, hog farmer

He says that hog producers have been losing between $20 and $40 per head as the price of corn has tripled.

"Unless the price of meat rises dramatically, we will have to cut costs or lose money and that's not an option," he says.

Fortunately for Jay - if not consumers - the price of meat is set to rise dramatically. Higher feed costs are having an impact. But that is not the only thing driving prices.

"Other countries are increasing their standard of living," he says. "With demand, especially from China and other countries, we're looking at price rises of $50 to $60 per head."

And he expects it to get worse.

"Corn, soybean feed is up, fuel up a dollar and half, fertilizer costs are about to double - everything points to higher prices."

The era of cheap food may be over.

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