|Food & Fuel – Corn becomes more prized than ever.|
Editor’s Note: We have made no secret of our concern for the tropical rainforests of the world, the total area of which has been cut roughly in half in the last 150 years by steady population growth, logging, timber, and agriculture. And in the last 5-10 years a new threat to tropical rainforests has emerged and become perhaps the greatest challenge yet – deforestation to grow biofuel. The irony is that biofuel is touted as a “carbon neutral” way to produce fuel, but if anything really is causing climate change, it’s rainforest destruction.
After being asleep at the wheel up until about a year ago, the environmentalist community has awakened, enacting much needed changes to, for example, certification procedures for sustainable biofuel. It is not likely that European Carbon Offset Credits will fund any further rainforest destruction. Similarly, in the USA, groups like the 25×25 Alliance have come up with Sustainability Principles for biofuel. All of this is necessary and welcome.
On the other hand, the fact that biofuel is as fungible as money means much of what the developed world does to secure a sustainably produced supply of biofuel is irrelevant. The genie is out of the bottle, and biofuel grown in unsustainable ways will still be sold, into local markets or on the black market. But let’s step back for a moment.
First of all, biofuel was going to come along as soon as petroleum prices got high enough to make it viable. We give ourselves too much credit if we think this might have been averted, if, for example, environmentalists were aware of the dangers of biofuel sooner. And while biofuel is inevitably causing food prices to rise, since many crops such as corn have dual uses as either biofuel feedstock or as food for humans and livestock, this is not all bad. Higher commodity prices will help avert deflation if the global economy undergoes a cyclical contraction – which is going to happen eventually. Higher prices also stimulate innovation – better ways to produce food and biofuel are being developed far more quickly than they might have been if prices remained low. For many years there were surpluses of food, and innovation lagged accordingly.
Global population stablization and urbanization – both inevitable and well documented trends – combined with technological innovation, are going to lead to abundance of land, energy and water within a generation. And hopefully when that occurs, tropical rainforests will regenerate even faster than they were lost. Biofuel today definitely has negative side effects, but when biofuel is grown in an enclosed reactor in a factory, and food of the highest quality is grown in urban highrise farms using recycled water, we will know these innovations came about because we saw what we were doing, and adapted. – Ed “Redwood” Ring
|CORN GROWING AREAS IN CHINA|
|Source: USDA Joint Agricultural Weather Facility|
China is the world’s second largest corn producer, but a growing appetite for grain combined with ambitious fuel ethanol targets may make the country a net corn importer, possibly as early as this year.
China may become net corn importer despite move away from grain ethanol. At present, grain accounts for about 80 percent of biofuel feedstock, and consumers are finding themselves at increased competition with the country’s burgeoning energy needs for limited domestic resources.
Although China can essentially meet its own grain demand for the moment, it is a tight balance that could easily be thrown off. With 20 percent of the world’s population but only 7 percent of global farmland, the country’s grain supply is under long-term pressure from a growing population, and rising incomes, while urbanization gradually nibbles away at cultivatable land.
By 2010, China plans to consume 6.7 million tons of blended ethanol fuel gasoline and 11 million tons of bio-diesel-blended diesel annually, which would meet 10 percent of forecast demand for transport fuel. Government targets caused demand for corn from the ethanol industry to explode, which has raised concerns about how the policy will impact the country’s grain supply safety and price inflation.
Although the government has suspended the approval of new corn-based fuel ethanol projects and encouraged the use of non-grain feedstock for ethanol plants, industry insiders remain doubtful.
“China has just started on its mass plantation plans for cassava and sweet potato for industrial use, and it takes time for such crops to grow and mature,” said an official with a foreign equipment manufacturer whose products include those used in bio-fuel production. I believe that within three years time, grains such as corn and wheat will still be the leading feedstock for ethanol fuel.”
Henan Tianguan Enterprise Group Co. Ltd., one of the country’s four major ethanol producers, currently uses a mix of 60 percent wheat, 20 percent corn, 10 percent cassava and 10 percent sweet potato to produce the fuel.
China has just started large-scale production of crops such as cassava, sweet potato and sweet sorghum. However, the country lacks mature technology to produce cellulosic ethanol, which is seen as the future of large-scale ethanol fuel industry.
China’s concerns about rising food prices and grain supply concerns are not unique. A report published last year by the Sri Lanka-based World Water Management Institute said biofuel production will increase demand for land at the expense of the environment, and will also require large quantities of water, already a major constraint to agriculture in many parts of the world, including China. Other reports have said that ethanol production may severely impact upon the food industry, since, at excessive levels, it can use the food industry to feed energy needs.
The International Monetary Fund has said higher bio-fuel demand will push up food prices, especially for the world’s poor, and increase food import costs, thus curbing economic growth. In the last 15 years, China went from being the world’s largest soybean exporter to the world’s largest importer. With similar trends emerging in soy meal, edible oil, and grains, rising import costs will affect the lives of hundreds of millions of people.
China began promoting the production of corn-based ethanol in 2001, when the country’s corn production was booming, and net corn exports increased from 10.47 million tons in 2000 to a high of 16.4 million tons in 2003. After peaking in 2003, imports began to fall rapidly. Last year, China’s corn exports reached 4.8 million tons, but this was mainly due to the fulfilling contracts signed in 2006.
|CHINA’S GRAIN OUTPUT: 1997 – 2007|
|Source: China’s National Bureau of Statistics (NBS)|
The dramatic reduction of export quotas for this year from 3 million to 1 million tons, the ongoing introduction of stricter usage policies, and the cancellation of all tax rebates on grain exports belie the official stance of grain security, especially insofar as corn.
Consumption in 2008 is estimated at 141.5 million tons, of which nearly two-thirds is for animal feed. In January, pork prices surged 58.8 percent year-on-year. Further rapid price growth, coupled with government support to the industry, may see pig production increase at a faster-than-anticipated rate, which means livestock feed estimates are likely too conservative. An increase of 5 percent in this area could put severe strains on domestic supply. Corn and soy meal are used to produce approximately 70 percent of animal feedstuffs. Note that these figures have not yet been adjusted for damage and losses caused by the current snowstorm crisis that has battered China since mid-January.
|CHINA’S GRAIN DEMAND: 1997 – 2006 (million tons)|
|Source: China Customs, Chinese Ministry of Agriculture, Interfax research.
(In this report, Interfax uses the sum of domestic grain output
and net grain import to estimate total domestic demand for grain.)
The USDA estimates China’s state corn stockpiles are in the region of 35 million tons, but it is difficult to verify this figure. However, given China’s aggressive state auction policy designed to stabilize market prices, this figure may be optimistic, although it could serve as a cushion in the event of a production shortfall.
Planting intentions, while difficult to predict as farmers tend to delay decisions, may be affected by corn ethanol restrictions. The tendency may be to shift to wheat and, where possible, soybeans which are more profitable, and China may have to resort to significant corn importation, possibly this season. This may be a continuing trend, given the scarcity of arable land and water resources.
If China does become a net corn importer this year, the impact on the price, both domestically and globally, will be dramatic and a price of $6 per bushel, up from current price of $5 is probable. The question now is how China will impact other agricultural commodities, like wheat, soybean and edible oils, in the year ahead.
Edited by Erik Dahl with contributions from Victor Wang, Tinko Hua, Yang Jing, and David Harman. This article was originally published by Interfax-China, and is republished with permission.
Findings in the article are based on extensive research from the Interfax-China China Commodities Report Grains & Softs 2008 industry report. Interfax-China’s team of in-country analysts track China’s industries and markets, providing comprehensive daily coverage of China’s energy sector. Learn how more about these markets and the opportunities they offer your business. Learn about energy in China through our China Energy Weekly and focused energy reports carbon trading, clean & renewable energy, CTL, oil & gas, and power generation. Free Trial: Contact Andrew Billard; firstname.lastname@example.org or by phone at 86-10-8532-5021 (Beijing, China).
Additional EcoWorld reports on China:
- China’s Coal
- Cleaning Up China
- China’s Energy Demand
- China’s Renewable Energy
- Wind Power in China
- China’s Energy Outlook
- Fuel Cell Development in China
- China, Canals & Coal