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First Generation Biofuels Compete
Marshall A. MartinPurdue University
USA
Transgenic Plants for Food Security in the Context of Development
The Pontifical Academy of Sciences15-19 May 2009Casina Pio IVVatican City
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An Overview of the Presentation
• Some recent history• Production of corn-based ethanol• U.S. government biofuel mandates• The food vs. fuel debate• Recent commodity and food price behavior• The livestock vs. fuel debate• Environmental issues• World and developing country perspective• Role of biotechnology• Concluding comments
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The Food vs.
Fuel Debate
The Headlines
• Biofuel plant expansion
• Foreign oil independence
• High food prices cause riots
• Ethanol plant bankruptcy
• Hitting the blend wall
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~200 ethanol plants in the United States
Source: www.renewable-ag.com
Expansions/New Construction
Currently in Production
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Growth of Corn-Based Ethanol Production
• Six-fold increase in 10 years• Drivers of the growth:
– High petroleum prices– Government incentives and
mandates– Desire for less dependence on
imported oil– Effort to increase farm income
and create jobs in rural communities
Source: Fastech LLC, March 2009
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Why the recent debate?• Rapid investment in ethanol
plants increased the demand for corn
• Economic growth in global markets increased demand for commodities
• Weak U.S. dollar encouraged grain exports
• High petroleum prices provided market incentives for ethanol use, but increased commodity prices and food costs
• U.S. EPA ruling to replace MTBE with ethanol
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An Historic Perspective on Commodity Prices
Record high commodity prices in nominal but not real terms
Source: Abbott etal, What’s Driving Food Prices, Farm Foundation, July 2008
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Net Returns to Ethanol Producers
Very profitable in 2007-08, but sharp decline in 2008-09 mainly due to weaker consumer demand for gasoline and lower petroleum prices.
Source: Glauber, USDA Chief Economist, February 2009
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How is ethanol produced from corn?
Source: Enzyme Use for Corn Fuel Ethanol Production, Novozymes, July 2007
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Use of Distillers Dried Grain with Solubles (DDGS)
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U.S. Government Mandate:Renewable Fuel Standard
YearRenewable
BiofuelAdvanced
BiofuelCellulosic
BiofuelBiomass-based
Diesel
UndifferentiatedAdvanced
Biofuel
TotalRFS
2008 9 92009 10.5 0.6 0.5 0.1 11.12010 12 0.95 0.1 0.65 0.2 12.952011 12.6 1.35 0.25 0.8 0.3 13.952012 13.2 2 0.5 1 0.5 15.22013 13.8 2.75 1 1.75 16.552014 14.4 3.75 1.75 2 18.152015 15 5.5 3 2.5 20.52016 15 7.25 4.25 3 22.52017 15 9 5.5 3.5 242018 15 11 7 4 262019 15 13 8.5 4.5 282020 15 15 10.5 4.5 302021 15 18 13.5 4.5 332022 15 21 16 5 36
Source: Renewable Fuels Association
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U.S. Renewable Fuel Standard
Renewable Biofuel --
Starch-Based
Advanced Biofuel
Cellulosic Biofuel
BioDiesel
0
5
10
15
20
25
30
35
40
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Billion Gallons
Source: Steve Meyer, Paragon Economics Inc., March 2009
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The Biofuels vs.
Food Debate
Did corn prices drive
up food prices in
early 2008?
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The Biofuels vs. Food DebateAre affluent car owners driving up the
price of food to the poor?
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Food vs. Fuel Debate
• Sharp global food price increase in 2007-08 followed by a dramatic decline in 2008-09
Source: Brian Wright, University of California Berkley. Snyder Lecture, Purdue University, April 17, 2009
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The Biofuels vs. Food Debate
The dietary transition
Increased grain and meat exports to countries with
population growth and increasing per
capita income
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Currency Exchange Rate ImpactsWeaker U.S. dollar results in :•Increased U.S.exports•Higher priced oil
Source: Barchart.com, May 2009.
45% Depreciation2002 to June 2008
20% Appreciation SinceJune 2008
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Global Grain Market Behavior
Global grain demand has outpaced supply for a decade
Lower stocks-to-use puts upward pressure on grain prices
Source: Chris Hurt, Indiana Ag Outlook 2009
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U.S. Consumer Food PricesRecent U.S. consumer food price behavior
Source: Corinne Alexander, Department of Agricultural Economics, Purdue University, August 2008.
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U.S. Consumer Food Price ChangesRelative Final Final Final Final Forecast
Importance 1 2005 2006 2007 2008 2009 2
Consumer price indexes Percent
All food 100.0 2.4 2.4 4.0 5.5 3.0 to 4.0 Food away from home 44.3 3.1 3.1 3.6 4.4 3.5 to 4.5 Food at home 55.7 1.9 1.7 4.2 6.4 2.5 to 3.5 Meats, poultry, and fish 12.2 2.4 0.8 3.8 4.2 2.0 to 3.0 Meats 7.9 2.3 0.7 3.3 3.5 1.5 to 2.5 Beef and veal 3.8 2.6 0.8 4.4 4.5 1.5 to 2.5 Pork 2.4 2.0 -0.2 2.0 2.3 1.5 to 2.5 Other meats 1.7 2.4 1.8 2.3 3.1 0.0 to 1.0 Poultry 2.3 2.0 -1.8 5.2 5.0 2.0 to 3.0 Fish and seafood 2.1 3.0 4.7 4.6 6.0 4.0 to 5.0 Eggs 0.7 -13.7 4.9 29.2 14.0 -5.0 to -4.0 Dairy products 6.2 1.2 -0.6 7.4 8.0 -4.0 to -3.0 Fats and oils 1.6 -0.1 0.2 2.9 13.8 3.0 to 4.0 Fruits and vegetables 8.2 3.7 4.8 3.8 6.2 3.5 to 4.5 Fresh fruits and vegetables 6.2 3.9 5.3 3.9 5.2 4.0 to 5.0 Fresh fruits 3.1 3.7 6.0 4.5 4.8 4.0 to 5.0 Fresh vegetables 3.1 4.0 4.6 3.2 5.6 3.5 to 4.5 Processed fruits and vegetables 1.9 3.3 2.9 3.6 9.5 3.0 to 4.0 Sugar and sweets 2.1 1.2 3.8 3.1 5.5 3.0 to 4.0 Cereals and bakery products 7.9 1.5 1.8 4.4 10.2 2.5 to 3.5 Nonalcoholic beverages 6.7 2.9 2.0 4.1 4.3 3.0 to 4.0 Other foods 10.1 1.6 1.4 1.8 5.2 3.0 to 4.0Market basket of farm foods: Farm value N.A. -0.4 -3.1 18.3 3.8 N.A. Farm to retail price spread N.A. 5.2 0.4 0.9 7.5 N.A. Retail price N.A. 3.9 -0.3 4.5 6.7 N.A.
[Contact: Ephraim Leibtag 202-694-5349, [email protected]]
Percent Change
Forecasts by Economic Research Service. Source of historical data: Bureau of Labor Statistics
1BLS estimated expenditure shares, December 2008.2Forecasts updated by the 25th of each month.
N.A. = Not available.
•Sharp increase in
2007-08•Greater increase for poultry and dairy than other livestock products
•Greater increase for those requiring further processing
Source: USDA-ERS, Briefing Room, March 25, 2009
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Differential Impacts of Food Price Increases
Higher income consumers spend a relatively small portion of their budget on food and price increases have a relatively small impact
U.S. consumers spend only 5.7% on food consumed at home
Low-income consumers spend a large proportion of their budget and food price increases can have a substantial adverse impact
In India and China consumers spend about 35% on food consumed at home
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Livestock Producervs.
Fuel Debate
•Higher feed costs reduced profit margins
•Livestock producers requested government policy modifications
2004 2005 2006 2007 2008 2009
Source: Chris Hurt, Department of Agricultural Economics, Purdue University, April 2009
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Ethanol Industry Subsidies
• $.54/ gallon import tariff
• $.45/gallon blenders subsidy
• Some local communities have provided incentives for plant locations
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The Petroleum & Corn Value Proposition
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Ethanol Industry Response •Stopped plant construction
•Idled some plants
•VeraSun filed bankcuptcy and sold some plants
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Ethanol plants and capacities
• March 2009:– 193 plants – 12.4 billion gallons of capacity– 23 plants with capacity of 2.1 billion
gallons still under construction or expanding
• Ethanol plants are currently operating
at 16% under capacity
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The Blending Wall
Source: Energy Information Administration
115
120
125
130
135
140
145
Bill
ion G
allo
ns
U.S. Blended Motor Gasoline Consumption
•Currently 10% blend
•Relatively few flex-fuel cars
•Approaching maximum ethanol to gasoline use relationship
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U.S. Corn Production & Usage By Category
U.S. CORN PRODUCTION & USAGE BY CATEGORY
0
1000
2000
3000
4000
5000
6000
7000
1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Usage - Mil. bu.
Ethanol
FSI-Non Ethanol
Feed & Residual
Exports
Source: Steve Meyer, Paragon Economics, Inc., March 2009
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Farmer Response and Environmental Issues
• Changes in corn production imply: More tillage and potential soil erosion
• More fertilizer and ag chemical use and potential water contamination
• More trucks on highways
U.S. Corn, Soybean, Wheat & Cotton Planted Acreage
Source: Glauber, Chief Economist, USDA, February 2009
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Corn Outlook
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World Fuel Ethanol Production
USA (corn-based) andBrazil (sugarcane-based) about equal
Source: Enzyme Use for Corn Fuel Ethanol Production, Novozyme, July 2007
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Transgenic Crop Adoption
Rapid adoption in the Western Hemisphere
Adoption of Transgenic Corn
Mill
ion
Hec
tare
s
Source: GMO Compass, October 9, 2008, www.gmo-compass.orgSource: Clive James, ISAA
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Transgenic Crop Adoption
Transgenic Corn as Share of Total Area
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Biotechnology Developments to Enhanced Corn-Based Ethanol
• Drought-tolerant varieties to increase yield
• Selection for higher starch content
• Enzymes to increase corn grain and residue conversion efficiency to ethanol
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Concluding Thoughts•Several market and policy factors are driving commodity, food, and fuel prices.
•U.S. ethanol production capacity is approaching the renewable fuel standard.
•Increased production and processing efficiency will likely make it possible to meet food, feed, and fuel demands.
•But policy and weather events can distrupt markets and the recent food vs. fuel debate could reoccur.
•The challenge is to encourage adoption around the world of known agricultural technologies and develop new ones if society is going to meet our food, feed, and fuel demands in a sustainable manner.
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Questions?
Thank You!