It relieves the U.S. from dependency on foreign oil, some reports say, and it reduces the pollution spewed out the tailpipe.

But, those benefits may take a high human toll.

Over 80 percent of the world’s supply of corn comes from five countries. The U.S. leads the pack, supplying over half of world’s exports, according to a study released Oct. 13 at the World Food Prize in Des Moines.

Three years ago, the world went through a food crisis generated in part by high prices and experts still debate the extent to which ethanol production should be blamed.

Josette Sheeran

There was enough food on the market, but high prices reduced many of the world’s poor to hunger, said Josette Sheeran, the director of the United Nation’s World Food Program. Contributing to the crisis, were countries that cut exports of in-demand crops.

Hunger is not limited to these periods of extreme global crisis. Every ten seconds a child dies of hunger, Sheeran said in a speech in July.

By 2050, there will be roughly nine billion people to feed on this planet. Already, one in seven people suffer from chronic hunger.

“We are living in a post-surplus world,” Sheeran said. “The world has to be a lot smarter about how we are using our supplies.”

The food market is increasingly volatile, the International Food Policy Research Center says. The use of biofuels ties food prices to the volatile oil market and contributes to low supplies.

During the 2008 food crisis, the price of food shot up about 43 percent, according to a release by the U.S. Agency for International Development. Experts worry low food stocks, high demand and food price volatility could lead to future food crises.

While people in many nations struggle to find money for food, most people in the U.S. don’t. They spend roughly 6.4 percent of their budgets on food eaten at home, according to the U.S. Department of Agriculture’s Economic Research Service. But in low-income countries, like Pakistan and Kenya, people spend roughly 45 percent of their budgets on food, the research service reported.

The Food and Agriculture Association says using agricultural land to produce biofuels “substantially affects food production.” As the production of biofuels doubles to meet policy requirements, the impact “would probably be intolerably high…for the next few years until the production of food has increased to meet the growing demand,” the association said in a report released after the 2008 food crisis.

Such numbers provide the backdrop for a contentious food-versus-fuel debate among politicians, farmers and humanitarian aid groups.

U.S. Ethanol Policy Impacts World Food Supply

Government subsidies for ethanol production in the U.S. has become part of the controversy.

A federal subsidy and a protective tariff on foreign imports, which are set to disappear at the end of the year, have buttressed the corn ethanol industry in the U.S. for years.

The subsidy commands $5 billion from the federal budget, which translates to 45-cents per gallon given to blenders who use ethanol. The tariff, a 54-cent tax on imported ethanol, helps to keep U.S. ethanol competitive with ethanol from Brazilian sugarcane and other sources.

To help the industry even more, a federally mandated Renewable Fuels Standard requires the production of 12.6 billion gallons of ethanol this year and 15 billion by 2015.

But those measures may soon undergo major changes. Opposition to the subsidy has emerged in the Republican Party’s presidential nomination campaign. And a bill introduced on Oct. 5 would make the mandate dependent upon the supply of corn. If in effect today, the proposal would lower the Renewable Fuels Standard by 25 percent due to recent low corn stocks, said Rep. Bob Goodlatte (R-Va.) a sponsor of the bill

Dermot Hayes

Dermot Hayes, a professor of economics and finance at Iowa State University, said subsidies won’t have a major impact on ethanol production, because they were mainly used to get the plants built.

However, Hayes, who holds the Pioneer Hi-Bred International Chair in Agribusiness, said if the government shut off all its support for ethanol and the industry got stuck purchasing expensive corn without aid, it would “go broke.”

Lucy Norton, managing director of the Iowa Renewable Fuels Association, said, “We have enough supply to provide crops for all markets.”

Norton said a third of the corn used for ethanol returns to the market as distiller’s grain, a production by-product used as livestock feed. The price of grain, including corn, has increased due to the end of a period of artificially low prices, when the price of corn was below the cost of production, she added.

Jason Hill, an assistant professor in bioproducts and biosystems engineering at the University of Minnesota, disagreed. Hill said the large amount of corn devoted to ethanol not only affects the price of corn, but also soybeans and cotton.

“Acres of cotton are shifted out to make room for soy as soy is shifted out to make room for more corn,” Hill said. “It’s simple economics. Using corn for ethanol rather than feed does have a global effect.”

Jason Hill

Hill questioned whether distillers grain sufficiently replaces corn devoted to ethanol.

“Let’s assume one-third does go into distillers grain,” Hill said. “That still leaves two-thirds.”

He rejected arguments that corn used for ethanol doesn’t come from a food source. Any corn not used for ethanol or eaten as a vegetable or high fructose corn syrup is used for food, because it is fed to the livestock that we eat, Hill said.

“What is a chicken,” former Agricultural Minister for Brazil Roberto Rodrigues asked, when discussing his country’s increased production of poultry in an interview. “It is an egg full of corn and soybeans that flies.”

The Politics of Ethanol

The ethanol industry has boomed in the U.S. largely because of politics, Hill said. There is no credible study proving ethanol decreased greenhouse gases, and that it has only a negligible effect on reducing our dependence on foreign oil, he added.

The Energy Independence and Security Act of 2007 expanded the Renewable Fuel Standard to the production of 36 billion gallons of renewable fuel.

Biofuel from corn is capped at 15 billion gallons, so the corn-ethanol industry is not expected to expand much once the cap is reached in 2015.

The production of corn ethanol is notably inefficient, but the government continues to subsidize its production. Meanwhile, Brazil produces far more efficient biofuel from sugarcane, but representatives from the Brazilian biofuels industry say the U.S. use of tariffs prevent ethanol development.

The gap in energy yield between corn and sugar cane is stark. One unit of fossil fuel energy is required to produce 1.5 units of corn ethanol, according to a study on bioenergy development published by the World Bank. In sharp contrast, the same amount of fossil fuels will produce eight units of sugar cane ethanol.

Cellulosic biofuel, or fuel made from non-food sources like switchgrass, corn stover or forest residues, was supposed to reach 16 billion gallons by 2022 in accordance with the fuel standard. However, a study released by the National Research Council, said meeting this mandate is unlikely as production is not yet possible on the commercial scale.

Lack of Land Seen as the Problem

Hayes argued that whichever way you plant it, land is the scarce resource, not corn.

“Here in Iowa you can grow switchgrass, corn, soybeans,” Hayes said, but planting switchgrass would still take that corn out of production.

A July report commissioned by the Renewable Fuels Foundation concluded that no single factor causes food price increases.

Crystal Carpenter, a senior consultant for Informa Economics, said the report does not argue that biofuels haven’t had any impact, but rather that ethanol is one of many factors, including energy costs, weather, and the economic exchange rate, many of which cannot be controlled.

“But, producing biofuels could be a balancing force to help mitigate volatility in energy prices, and it is one thing we do have control over,” Carpenter said.

Corn Stocks

U.S. markets are linked to foreign markets, even in remote regions of Africa, Sheeran said during a press conference at the World Food Prize. Sheeran described a 2008 visit to Addis Ababa, Ethiopia, where “everything was moving on donkeys.” But, even there, the Internet permeated, she said.

Sheeran said she spoke with a man selling teff, a type of small grain.

“When I asked him how he set his prices, he said, ‘I go on the Internet every morning and check the prices on the Chicago board of trade. I use those prices, but discount them 10 percent since we are a poor nation.’”

Low stocks and high prices in the U.S. spell bad news for foreign consumers.

Devoting over one-third of corn to biofuels contributes to price volatility because the mandates are too rigid to respond to fluctuating supplies, according a report at the World Food Prize by the International Food Policy Research Institute.

Abandoning Ethanol Called Unrealistic

The biofuels industry has become a significant presence in Iowa’s economy. With 41 ethanol plants and 14 biodiesel refineries, the industry supplies roughly 577,000 jobs and provides an income source for farmers, according to the Iowa Renewable Fuels Association.

Ethanol production reduced gas prices by roughly 25-cents a gallon from 2000 to 2010, a study conducted by the Center for Agricultural and Rural Development at Iowa State University says.

“Five years ago, gas was more expensive than diesel prices,” Hayes, a co-author of the study, noted. He said the biggest gas-price declines were in areas with higher ethanol use.

Ethanol provides about 10 percent of the gas moving American vehicles, Hayes said. Stopping ethanol production would require more imports in an already tight oil market, which would raise gas prices by 41 to 92 percent, the study estimates. But, Hayes said the rise would be short-lived.

Hill said the present fuel solution lies more in the field of efficiency and conservation than in biofuels. A one-mile increase in gas mileage would do more for energy independence than the annual production of 14 billion gallons of ethanol would, Hill said.

This story was produced by IowaWatch.org, the news website of the non-profit, non-partisan Iowa Center for Public Affairs Journalism.

It’s an issue that’s gotten lots of attention in other countries, such as Bolivia, where I was reporting on this a few years ago, but has remained largely under the radar here in the United States. Like the World Trade Organization rules that Ed wrote about, Bilateral Investment Treaties, which are negotiated between two countries, allow a foreign company to challenge the domestic laws of the country it’s investing in, and to claim they act as an unlawful restraint of trade by expropriating the value of the company’s investment.

In Bolivia, the fear was that multinational oil companies would use bilateral investment treaties to challenge President Evo Morales’s attempts to gain more control over the nation’s natural gas industry, which had long enriched foreign companies but did little to raise the living standards of Bolivians. (In fact, the companies did use those treaties to limit the president’s actions.)

When President George W. Bush was negotiating the Central American Free Trade Agreement, which contained similar protections for foreign companies, environmental groups worried that the treaty would make it impossible for the government to pass rules limiting the use of toxic chemicals — like cyanide — that could contaminate groundwater, a problem I wrote about at the time for The Washington Post.

In South Africa, bilateral trade treaties have been used by mining companies to challenge post-apartheid laws aimed at opening up the mining industry to black South Africans who’d for years been kept out of the nation’s most lucrative industry.

The point is that these complex trade agreements allow a foreign corporation to sue a national government for monetary damages if it believes that the actions of the federal, state or local government in a given country are discriminatory, violate international law or can be considered — directly or indirectly — an expropriation of the company’s investment. If complying with an environmental regulation makes a project no longer worth the cost, then, a company can claim that its investment has been expropriated by the state.

What makes matters worse is that whether the company is in the right won’t be decided by an independent judge.  Instead, under a World Bank-governed system, it’s decided by a panel of three private international arbitrators chosen by the parties involved. These arbitrators are often corporate lawyers, who, in another case, could be representing the multinational corporation investor. Local residents of the countries affected by the project — whether in Michigan or Guatemala — are not parties to the case. The government’s right to protect the water supply in Guatemala or the residents living near an explosive natural gas facility in Michigan, then, could be decided by private British or American lawyers.

Although the WTO system is a little different, the principles are the same: they give foreign companies rights that domestic corporations don’t have, and an unelected, nonjudicial foreign body the right to decide whether and how domestic authorities can regulate corporations to protect the local people most affected by them.

It’s not just foreign countries that are affected: Canadian mining companies have similarly tried to assert these rights in California.

These are broad and dangerous rights ceded in poorly designed trade agreements that, as Ed points out in his groundbreaking and carefully reported story today, demand renewed scrutiny by Congress and the new administration.

From Nouriel Roubini, famous for having predicted this whole mess:

At this point severe damage is done and one cannot rule out a systemic collapse and a global depression. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster.

Paul Krugman was equally blunt:

Why do we need international cooperation? Because we have a globalized financial system in which a crisis that began with a bubble in Florida condos and California McMansions has caused monetary catastrophe in Iceland. We’re all in this together, and need a shared solution.

Why this weekend? Because there happen to be two big meetings taking place in Washington: a meeting of top financial officials from the major advanced nations on Friday, then the annual International Monetary Fund/World Bank meeting Saturday and Sunday. If these meetings end without at least an agreement in principle on a global rescue plan — if everyone goes home with nothing more than vague assertions that they intend to stay on top of the situation — a golden opportunity will have been missed, and the downward spiral could easily get even worse.

What should be done? The United States and Europe should just say “Yes, prime minister.” The British plan isn’t perfect, but there’s widespread agreement among economists that it offers by far the best available template for a broader rescue effort.

And the time to act is now. You may think that things can’t get any worse — but they can, and if nothing is done in the next few days, they will.

Here’s British Prime Minister Gordon Brown on the British plan, which calls for injecting money directly into banks.

Don’t look just to Wall Street for developments in this crisis. Watch to see if the Treasury Dept. and the U.S. government take some aggressive steps in the next few days — including coordinating a global response.

If they don’t, yes, it is time to panic.