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ECO 550 Are Rising Food Costs Related to Rising Fuel Costs

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Are Rising Food Costs Related to Rising Fuel Costs
Are Rising Food Costs Related to Rising Fuel Costs?
ECO 550
Are the rising food costs related to rising fuel costs? Not only does the
rising costs of fuel cause an increase in prices, but the use of some
crops to make biofuels also drives the cost of food up.
High crude oil prices have fueled interest in finding alternative energy
sources and reducing dependency on import oil supplies. The
emergence of biofuels has given rise to an alternative market for a
number of agriculture commodities.
Fossil fuel is a general term for buried combustible geologic deposits of
organic materials formed from decayed plants and animals that have
been converted to crude oil, coal, natural gas, or heavy oils by exposure
to heat and pressure in the earth’s crust over hundreds of millions of
years. The burning of these fossil fuels is the largest source of emissions
of carbon dioxide which is one of the greenhouse gases that contribute
to global warming.
Biofuels are transportation fuels like ethanol and biodiesel that are made
from biomass materials. The fuels are usually blended with petroleum
fuels, but can also be used alone. Using ethanol or biodiesel means we
don’t burn quite as much fossil fuel. Biofuels are usually more expensive,
but they are cleaner burning fuels that produce few air pollutants.
Ethanol is an alcohol fuel made from sugars found in grains such as
corn, sorghum or barley. Other sources are potato skins, rice, sugar
cane, sugar beets, yards clippings, bark and switch-grass. Most ethanol
uses in the United States is distilled from corn. Ethanol is a major type of
biofuel in the world and has expanded particularly in the United States
and Brazil. United States and Brazil account for greater than 70% of total
world production. As ethanol expansion rises the prices of agricultural
feed stock commodities and their competing crops increase with
implications for land allocations, food prices, and the environment. It is

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questionable if biofuels growth is positive or negative. It has impacted
the economy and the environment.
Mandated use of ethanol in the United States was enacted in 2005. The
Energy Independence and Security Act of 2007 set a much higher
standard for renewable fuel standard. This required a high corn crop use
for ethanol production. The government grants tax credits to the biofuel
industry. This allows the biofuel industry to bid much of the value of the
tax credits into crop prices. This adds to the upward pressure on crop
prices and higher energy prices. Energy and foot markets become tightly
coupled. Increases or decreases in energy prices will cause crop prices
and food production costs to increase or decrease.
In 2008, the United States consumed about 138 billion gallons of
gasoline and about 10 billion gallons of biofuel, primarily ethanol.
Ethanol is mainly used as a gasoline additive in blends of 10% ethanol
and 90% gasoline (known as E10). There is also a small blend of E*%
that is 85% ethanol and 15% gasoline that is used only in flexible fuel
vehicles that use either gasoline or E85.
The production of biofuels (ethanol from corn starch) reached 9 billion
gallons in 2008. The Energy Policy Act of 2005 created a Renewable
Fuel Standard (RFS), that required a certain amount of renewable fuel
such as ethanol and biodiesel in 2006. The Energy Independence and
Security Act (EISA) of 2007 expanded the RFS requiring that United
States transportation fuel contain 9 billion gallons of renewable fuels in
2008 and increasing annually to 36 billion gallons in 2022. EISA requires
that most advanced biofuels be produced from cellulosic materials or
feed-stocks, including perennial grasses crop residue, and the branches
and leaves of trees. Some research in recent years has questioned the
extent to which corn starch ethanol, as compared with gasoline, reduces
life cycle greenhouse emissions that occur during the process of
growing, harvesting, and transporting feedstock, producing the biofuels,
and using the biofuel in a vehicle. There has also been research that has
identified other adverse environmental effects from producing ethanol
from corn. (Biofuels Potential Effects and Challenges of Required
Increases in Production and Use, 2009, p2).
Biofuels production has had mixed effects on the United States
agriculture with regard to land use, crop selection, livestock production,
rural economies, and food prices. The increased demand for corn for

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