Growing use of corn for conversion to fuel may push up world prices of food

Growing use of corn for conversion to fuel may push up world prices of food: "Growing use of corn for conversion to fuel may push up world prices of food
By Finfacts Team
May 25, 2006, 13:17

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The US, the world's largest exporter of corn, will use as much or more of the grain for conversion to ethanol in 2007 than it will sell abroad, according to estimates by the Department of Agriculture (USDA).

As gasoline prices rise, farmers are diverting more of their output to producing fuel rather than food or feedstock for animals. The new estimate highlights the growing competition between food and fuel that could push up the price of food globally. .

The USDA says that about 55m tonnes of corn will be converted into ethanol, compared with exports averaging 40m-50m tonnes over the past 15 years. This would be up from an estimated 41m tonnes last year - a quantity of corn that could feed 131m people for a year. The US accounts for 70 per cent of world corn exports.

'This year looks like being the first time ever that as much or more corn is converted into ethanol than exported. If oil prices stay high, it will propel this trend much further,' USDA economist Keith Collins, said in an interview with the Financial Times.

US energy legislation requires ethanol production to increase to 7.5bn gallons by 2012, requiring about 68m tonnes of grain - more than the total grain harvest of Canada, Brazil or Indonesia. US output supplies just 3 per cent of US cars, a figure expected to rise significantly.

Prices of corn have risen by close to 20 per cent in recent weeks as world grain stocks have fallen to their lowest level since the early 1970s.

Use of sugar for fuel in particular in Brazil, have pushed sugar prices to a 25-year high. About 10 per cent of world sugar output is now used to produce ethanol. The level for corn is just 3 per cent for corn but has been rising fast and some experts b"