OTTAWA (AFP) — Attempts to reduce US dependence on imported oil by adding more ethanol to its gas tanks are only driving up food prices while delivering moot energy benefits, a Canadian bank warned on Monday.
Corn prices have already jumped by 60 percent over the past two years as American ethanol producers expanded capacity, said Jeff Rubin, chief economist at CIBC World Markets.
In 2008, food inflation would top five percent and the following year would approach seven percent, its highest level in more than 25 years, he said.
"This diversion of an ever-increasing share of the American corn crop from human consumption and livestock feed to energy production is putting steady and unrelenting pressure on food prices," Rubin said in a statement.
"Soaring corn prices not only pass directly into animal feed costs and corn-based food prices like tortillas, but they are spilling over to other grain prices as farmers scramble to expand corn production at the expense of other crops," he said.
Ethanol is used as an additive to gasoline, comprising as much as 10 percent of the fuel mixture in most automobiles. Ninety-five percent of the ethanol produced in the United States is distilled from corn.
The US administration has set a target to raise ethanol production from one billion gallons a year in 2000 to 35 billion gallons a year by 2017.
But Rubin also insists this will have a "negligible impact on US energy independence."
Corn for ethanol currently accounts for 13.5 percent of all corn production in the United States, yielding roughly 6.2 billion gallons of ethanol which is equivalent to only a one percentage point reduction in US gasoline consumption. Even if the United States achieved President George W. Bush's 2017 target, that would only reduce gasoline consumption by an estimated 6.5 percent, Rubin said.
"Ethanol indeed has certain benefits, but only for those who grow corn and distill it into alcohol," he said. "The only thing Bush's renewable energy policy will fuel is inflation."
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