Oxfam to EPA: Rein in runaway food prices

With food prices near record highs, more than 17,500 Americans joined relief and development organization Oxfam America in sending letters to the Environmental Protection Agency urging the agency to institute a waiver of the Renewable Fuel Standard (RFS).

Oxfam and thousands of supporters called on the EPA to wave the mandate because it has contributed to the recent food price spikes that have exacerbated hunger for millions of people living in poverty here in the US and around the world. Oxfam warned the EPA that increasing hunger resulting from the corn ethanol mandate is not only a moral failure but also a threat to the US economy and our national security.

“This sharp rise in food prices is a threat to the economic and human well-being of people not just in the United States, but also around the world,” warns Oxfam’s letter.  “While concerns about high food prices are foremost about the spread of hunger and poverty, high food prices are also strongly correlated with political instability and have historically been a catalyst for mass protest in countries where legitimacy is already faltering.”

In 2010 and 2011, nearly 40 percent of the US corn supply was used in ethanol production, due to significantly expanded requirements of the RFS. Agricultural economists have estimated that the diversion of corn into ethanol production has resulted in an increase in corn prices of approximately 30 percent.

“Leadership is urgently needed to deal with runaway food prices that increase hunger around the world,” said Eric Munoz, policy advisor for Oxfam America. “We can all hear the alarm bells ringing; it’s time for leaders in Washington to finally do something about it.”

On August 20, 2012, the EPA issued a request for comment on letters from the Governors of Arkansas and North Carolina seeking a waiver of the volume requirements of the Renewable Fuel Standard (RFS). The comment period ended yesterday and now the EPA must decide on the waiver request within 90 days of receiving it, in consultation with the Departments of Agriculture and Energy.

/ENDS

NOTES TO EDITORS:
Link to letter signed by more than 17,500 Oxfam supporters: https://secure.oxfamamerica.org/site/Advocacy?cmd=display&page=UserAction&id=1347

Full text of Oxfam America’s letter to the EPA

October 11, 2012

Re: Docket ID No. EPA-HQ-QAR-2012-0632
Comment on Letters Seeking a Waiver of the Renewable Fuel Standard


Oxfam America appreciates the opportunity to comment on recent letters received by the Environmental Protection Agency requesting a waiver of the Renewable Fuel Standard, or RFS.  As a humanitarian relief and development agency concerned with the impact U.S. policies have on people’s efforts to escape poverty, we are writing in support of the formal requests submitted by the Governors of Arkansas and North Carolina seeking a waiver of the biofuel mandates for corn based ethanol in the RFS. We are aware that additional requests have also been made by the governors of Texas, Georgia, New Mexico, Maryland and Delaware as well as 156 U.S. Representatives and 34 U.S. Senators, underscoring the severity of the situation at hand and the need for EPA Administrator Jackson’s consideration and action.

Under current conditions, the imposition of a mandatory minimum level of corn-based ethanol as an oxygenate fuel additive carries real, negative economic consequences, particularly for people living in poverty in developing countries and in the United States, including those in states petitioning for the waiver. We therefore request that Administrator Jackson exercise her authority under Section 211(o)(7) of the Federal Clean Air Act to immediately waive the biofuel mandate for corn-based ethanol.

Current pressures on cereal and food prices

According to the most recent U.S. Drought Monitor assessments, the current drought affecting the U.S. has reached historic proportions and has persisted past the summer, leaving 65.5 percent of the contiguous U.S. in varying degrees of intense dryness. America’s most beleaguered regions – the Central Plains and Corn Belt – give ample indication that corn harvests for 2012 will fall below projections made earlier this year. The U.S. Department of Agriculture’s October crop estimates indicate that corn yields are expected to be 17 percent below 2011 levels which would result in the smallest corn crop since 2006.

As the growing season for corn has now come to an end and fall harvesting has begun, it is unrealistic to expect that any improvement in current weather conditions at this stage could reverse or undo crop losses for the year. Evidence gathered by all measures now points to a tightening U.S. corn supply, sending stress signals to agricultural commodity markets that have responded with fluctuating corn prices, ranging from around $5.00 per bushel at the beginning of the summer to record high futures contract prices, closing at $8.02 in August. Prices are projected at up to $8.50 per bushel this fall according to the most recent forecasts by the U.S. Department of Agriculture.

However the drought alone is not entirely to blame for recent high corn prices; in fact, the RFS is significantly exacerbating the effects of the drought. Current mandates in the RFS which require 13.2 billion gallons of corn-based ethanol to be blended into the U.S. fuel supply in 2012 and 13.8 billion in 2013 have been a driving factor in increased prices for agricultural commodities, corn in particular.

In 2010 and 2011, nearly 40 percent of the U.S. corn supply was used in ethanol production, due to significantly expanded RFS requirements outlined in the Energy Independence Security Act of 2007, which mandated an annually increasing production schedule of corn-based ethanol for blending into the US fuel supply.  In the years following implementation of these new requirements – more commonly referred to as RFS2 - research suggests that the redirection of corn out of the food supply and into corn-based ethanol production represented a loss of 3.3 percent of global grain production.   A spillover effect of this increased demand for corn has been an increase in food prices experienced most dramatically since 2008. Using the Food and Agriculture Organization Food Price Index as a benchmark indicator of global food prices, researchers have found that “corn ethanol is likely to be responsible for the underlying increase in the cost of food” during the 2008-2011 period.  Agricultural economists have estimated that the diversion of corn into ethanol production has resulted in an increase in corn prices of approximately 30 percent.   

The consequences of the increased demand for corn are being felt beyond the corn market; as demand for corn-based ethanol resulting from the RFS continues to influence the price of corn, the price of other food commodities such as soybeans and wheat are also affected. In July and August of this year, the UN Food and Agricultural Organization (FAO) reported record global grain prices, shooting up 38 percentage points from June.  The expected poor harvest for corn in 2012 will likely further exacerbate this trend.

Consequences of high food prices for those living in poverty in the United States and globally

At present, the two states seeking relief from current and future mandates for corn-based ethanol rank 34th (North Carolina) and 45th (Arkansas) out of the 50 states in terms of percentage of the population living in poverty. These high poverty rates and the sharply increased cost of food have exacerbated food insecurity in these states. Consistently since October 2008 food price inflation has outpaced the general rate of inflation in the United States.  In September, the USDA announced that on average 14.7 percent of the US population reported being food insecure between 2009 and 2011. Arkansas was tied with Mississippi for the highest rate of food insecurity of any state over this period with 19.2 percent of the population reporting food insecurity; and in North Carolina 17.1 percent of the population reported being food insecure.

Hunger and food insecurity in the United States carry real economic costs and consequences in terms of increased healthcare costs, lost educational opportunities and increased costs to domestic charities to provide needed support. Recent analysis calculates these costs at $5.44 billion for North Carolina and $2.03 billion for Arkansas in 2010.  These conservative estimates- which do not include the additional spending for government nutrition programs (such as SNAP and the free and reduced cost school lunch programs)-demonstrate the substantial economic costs of food insecurity deriving, in no small part, from increased food prices resulting substantially from the RFS mandate for corn-based ethanol.

This sharp rise in food prices is a threat to the economic and human well-being of people not just in the United States, but also around the world, particularly in countries reliant on U.S. imports to meet their food demands.  In many developing countries today, cereals – including corn – are a dietary staple and represent over 50 percent of the daily caloric intake for millions of people.    In low-income countries that are net food importers, where the poor consume mostly unprocessed foods, hunger is an ever-present threat when food commodities markets are hit by shocks. In fact, at the height of 2008, the World Bank estimates that the sudden, sharp increase in food prices drove 44 million people into poverty. Oxfam documented the struggles of people affected by high food prices and our organization is often challenged to address the impact of high food prices on vulnerable populations.

In the Sahel region of West Africa, for instance, more than 18 million people are emerging from a prolonged “hunger season” caused by a toxic mix of high and volatile food prices, poor harvests and chronic poverty and vulnerability. Several of the countries affected by the current crisis, Senegal and Mauritania in particular, could face a double-shock if prices increase and remain high. Senegal is one of the largest importers of corn in the West Africa region  and corn contributes approximately 10 percent of the calories to the Senegalese diet.  Furthermore, because about half of the grain consumed in Mauritania comes in the form of wheat, which is largely import dependent, high wheat process have raised alarm bells for the World Food Programme, which is worried about the impact higher prices will have on hunger and poverty in a country already experiencing severe food insecurity.

The problems affecting populations in the Sahel are representative of communities and countries around the world. Research released this month from Tufts University’s Global Development and Environment Institute has calculated the additional cost to Net Corn-Importing Countries from growth of U.S. ethanol production. In particular, from 2005/06, at the start of the RFS program, to 2011, increase demand for corn-based ethanol has cost net-corn importing developing countries $6.64 billion USD in increased import bills.  This added loss of domestic revenue further squeezes national budgets of the poorest developing countries and cuts into revenue that could have been used to pay for supplemental nutrition programs or emergency food reserves that protect vulnerable populations from food price shocks.

While concerns about high food prices are foremost about the spread of hunger and poverty, high food prices are also strongly correlated with political instability and have historically been a catalyst for mass protest in countries where legitimacy is already faltering. Research performed by the New England Institute for Science and Society has identified “a global food price threshold for unrest;” according to this analysis, food riots are more likely to occur when prices exceed “a FAO price index of 210.”  Currently, the price index for September stands at 216, and has gradually risen above 210 since July of this year.

Since 2007, food riots have broken out in more than 60 countries  and have occurred with heightened frequency during periods of record-breaking food prices such as in 2008, when food riots erupted from Europe to the South Pacific. The FAO food price index crossed the 210 threshold, for the first time, in February 2008.

The 2008 food riots are instructive as they reveal the contributing role new RFS2 requirements played in elevating corn prices and disrupting food markets at that time. RFS2 mandates for 2008 nearly doubled the total volume of U.S. biofuel production, from 4.7 billion gallons in 2007, to 9.00 billion gallons in 2008. As the new production requirements went into effect in 2008, all biofuel production that year was ethanol derived solely from corn. While global corn stocks were high for 2008, the significant uptick in the diversion of corn into ethanol production likely played a role in sending agricultural commodity prices and subsequently food prices soaring to then historic highs, prompting many of those affected to take to the streets. The world watched civil unrest erupt and spread across the globe.

Another wave of protests and riots in 2011, rippled across North Africa and the Middle East to become what is now referred to as the “Arab Spring,” revealing, among other things, how the failure to guarantee basic securities, such as an affordable supply of food, can topple governments. In 2011, the FAO food price index registered a record annual average of 228, the highest ever recorded since the index began measurements in 1990.  Experiences from the last two major food price crises of 2008 and 2011 confirm that the prospect of political unrest is likely and such unrest can potentially threaten the security interests of the U.S.

Need for waiver of the RFS mandate