Same things could happen here in the USA if we arent careful, in using our food as "feed" for our cars..........

There's nothing "free market" about corn subsidies. I've never been a fan of corn ethanol because the energy balance makes it a dubious gain, if that much. But it's not just the subsidies, it's the oxygenates the EPA requires, and the 54 cent/gal tariff on imported ethanol. Though the way things are going sugar cane ethanol might be cheaper even with the tariff.

Yes, corn is not the right biomass for ethanol.
But it doesn't matter.
It's not the product we NEED to have, it's the process. We are using the corn subsidies as a way to ensure that the infrastructure is developed in America instead of importing the ethanol. Later, when the superbarges of oil stop coming, we can diversify the crops we use to produce fuel and find the best feedstocks (which will vary by area and need to include crop rotation). Without the subsidies and the corn lobby in the process, there would be no support/investment in the new infrastructure. The switchgrass lobby just doesn't have the power.

Of course, the dirty little secret is that we will still need to eliminate the majority of the amount of fuel we burn as a country regardless of what we make fuel out of and when it needs to happen by. But if Joe six pack realizes this, he won't support or care about any of this, since he probably won't be able to afford personal transportation in 10-20 years.

I look at it as the corn farmer having another cash crop from the same acre, cellulose ethanol from the corn stover. They might make more money from the stover ethanol than a bushel of corn kernels per acre. If that eliminates subsidies we are all better off.

NBK-Boston:

There is no such thing as free market for farm products in wonderful democracies such as USA, Canada and western Europe. We all know that farm lobbies and huge subsidies completely rule and dictate produce market prices.

China, with almost 1.5 billion people, has the right and is fully justified to favour the food chain instead of gas guzzlers.

Unfortunately, due to the power of farm lobbies, USA and Europe will not be able to stop the drain of food stocks to ethanol factories. High ethanol subsidies + the eagerness to reduce oil imports will drive food prices much higher within 2 or 3 years.
This will be the dark side of corn ethanol.
The corn based ethanol (3+ gals/day) required to run one gas guzzlers could feed many people.

Cellulosic ethanol or buthanol would be much better solutions, even at a slightly higher cost.

Let's hope that many countries will follow China and restrict the production of corn based ethanol.

Boy I have a lot of problems with that post.
Ethanol from cellulose, butanol, etc are all end results of where we are going with this. Corn ethanol is just the method to get there politically.
Restricting "Corn Based" ethanol won't change a thing (except to maybe leave the US more vulnerable to an oil crises). We need those processing plants running regardless of what the feedstock is. When the fit hits the shan, SUV's are not going to be burning ethanol. But MAYBE there will be enough ethanol production for the country to fuel tractors, semi's, mass transit and other mission critical infrastructure and prevent an all out collapse.

Food costs NEED to go up. They are artificailly low and Americans are VERY wasteful with food (myself included!) As the prices of food goes up (meat will see the highest inflation), less food will be wasted, more food will be grown in "victory gardens", the types of foods we eat will change, AND less food will be exported to 3rd world countries (the real dark side of ethanol).
Currently. excess food (grain) is exported and oil is imported. When the oil stops coming in, the food stops going out. Not a pretty thought for the overpopulated countries dependant on grain imports for food. But population dynamics are always ugly to contemplate.

Just some round numbers. If a bushel of corn kernels is 56 pounds, you can get 2 1/2 gallons of ethanol per bushel, the average SUV burns that in a day and the same bushel could feed 200 people for that same day...it puts it into some perspective.

Harvey D.:

I said nothing about a "free market" in corn. I spoke about a "market" in corn -- one which, at present, is rather distorted and not terribly free, but which still exhibits certain market-like behaviors from time to time. One of those is the tendency for prices to go up when both demand goes up and supply goes down. If you don't believe me, ask the boys down at the Chicago Mercantile Exchange about the corn market.

The point is, if you look at the price of raw corn as a fraction of the price of finished goods made with corn inputs, and then, for the sake of argument, double the price of corn, you see something like this:

1. Corn based foods, such as those that contain a lot of corn syrup, corn starch, corn meal, etc. The price of corn is a single-digit percentage of the retail price of the product. Result of doubling the price of corn: A 2L bottle of coke or jumbo-size bag of tortilla chips costs a dime more.

2. Animal products made from animals fed a lot of corn, such as milk, meat, etc. The price of corn is a low double-digit percentage of the retail price of the product. Result of doubling the price of corn: A pound of beef or a gallon of milk costs a quarter to fifty cents more. This is complicated by the availability of a large number of substitute animal feeds, as well as the fact that DDG, a byproduct of ethanol production, is a useful animal feed too.

3. Ethanol, made entirely from distilling corn mash. Doubling the price of corn raises its price something like 50%. At that point, it becomes too expensive to sell, relative to gasoline, cellulostic ethanol (which finally, finally seems to be happening), batteries to stick in electric cars, etc.

Having become too expensive to sell, ethanol production will be cut back. This eases demand on corn, and prevents the price from going up further.

It's as simple as that. Because the price of raw corn is such a large portion of the price of ethanol, it will choke itself off before it threatens our long-term food supply. At which point we will need a different alternative fuel, granted, but that's just what we're discussion on all our other posts.

NBK-Boston:

Just to go alone the same path, have you ever compared the price of a bushel of wheat in 1920 vs a loaf of bread = (about $2.00 vs 5 to 7 cents) and repeat the same exercise in 2006? The raw material price barely doubled (at best) but the load of bread has gone up 30 to 40 times.

I'm not saying that doubling the price of corn would multiply the price of the end product 40 times as it did with wheat but it may (will) have much more than the marginal effect you mentionned.

Whenever the price of the raw product doubles, the finish product price has a tendency to multiply by 3 ++ unless it is an heavily taxed product such as gasoline, whiskey, tobacco etc. Food products being mostly excluded from direct an indirect taxes the retail price will go up much faster than the farm price.

I know you could find many more examples of this non-linear relationship. Have a look a the farm price of fresh potatoes vs chips, corn farm price vs breakfast cereals, etc and you will find many examples of non-linear variations.

Corn may currently supply a minute (4%) amount of the fuel used but with a few hundred new plants coming on board in the next 3 to 4 years, surplus corn will melt away and pressure on corn price (and derivatives) may be more than expected.

Kudos, NBK, for the analysis. I did it before, as 1000 of other researchers. It is no way that use of food crops for fuel production could anyhow substantially influence our over-the-counter food prices.

We are actually live in terribly wicked world of rich people (luckily), where price of cup of coffee or bottle of distilled water (which is destroying our teeth) cost more than one ton of reverse-osmosis distilled sea water terribly missing in most of developing countries.

Roger,

I agree completely. After Katrina, they could not get grain through the Gulf, so people were actually burning corn in their pellet stoves, it was that cheap.

I was talking to my neighbour the other day. He has a stove that is fed wood pellets here in Canada. Now he is purchasing corn and mixing it with wood pelletes. I don't know how/why is it suddenly cheaper to burn corn than wood?!?!? Certainly something is out of whack when corn is cheaper than wood!

Roger:

You spell the word of the Wise. For developing countries transition of food stock to be hard-currency import earner has disastrous consequences to local families dinner tables. For US/Canada, or relatively well-off Brazil and Argentina it is not…

Harvey:

You are totally, absolutely, 200% right. Well, I consider crude oil prices generally market-driven (with crook’s speculations skimming couple of billion dollars weekly, which is not a big deal considering shear volume of crude trade), but multiplication of gasoline prices over base oil crude price in Canada (same in US, but not such shamelessly linear and stable) is just outrageous. With all my dislike to governmental price regulation, I would applaud measures to curb this scum scheme. Unfortunately, most of ours gasoline taxes are calculated as per cent of gasoline price, not fixed 15 cents per liter, so our government is actually benefiting in tax revenue from gasoline price spikes, and from oil companies taxes on net profits.

The good thing we can find comforting is that fuel efficient cars you and I drive do not benefit “Receiver Generale Du Canada” (pardon me my French) on same degree as gas-guzzlers. Yes, I know, our government spends money with the efficiency of James Watt steam engine (8%), but still it ends up in good things like health care…