1. First Generation Biofuels Compete
Marshall A. Martin Purdue University USA
Transgenic Plants for Food Security in the Context of Development
The Pontifical Academy of Sciences May 2009 Casina Pio IV Vatican City
Original file of this presentation

2. 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

3. 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

4. ~200 ethanol plants in the United States
Source:
~200 ethanol plants in the United States
Source:

5. 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

6. 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

7. 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

8. Net Returns to Ethanol Producers
Very profitable in
, but sharp
decline in
mainly due to weaker
consumer demand for gasoline and lower petroleum prices.
Source: Glauber, USDA Chief Economist, February 2009

9. How is ethanol produced from corn?
Source: Enzyme Use for Corn Fuel Ethanol Production, Novozymes, July 2007

10. Use of Distillers Dried Grain with Solubles (DDGS)

11. U.S. Government Mandate: Renewable Fuel Standard
Source: Renewable Fuels Association

12. U.S. Renewable Fuel Standard
Source: Steve Meyer, Paragon Economics Inc., March 2009

13. The Biofuels vs. Food Debate
Did corn prices drive
up food prices in
early 2008?

14. The Biofuels vs. Food Debate
Are affluent car owners driving up the price of food to the poor?

15. Food vs. Fuel Debate
Sharp global food price increase in followed by a dramatic decline in
Source: Brian Wright, University of California Berkley. Snyder Lecture, Purdue University, April 17, 2009

16. The Biofuels vs. Food Debate
The dietary transition
Increased grain and meat exports to countries with population growth and increasing per capita income

17. Currency Exchange Rate Impacts
Weaker U.S. dollar results in :
Increased U.S.exports
Higher priced oil
45% Depreciation
2002 to June 2008
20% Appreciation Since
June 2008
Source: Barchart.com, May 2009.

18. 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

19. U.S. Consumer Food Prices
Recent U.S. consumer food price behavior
Source: Corinne Alexander, Department of Agricultural Economics, Purdue University, August 2008.

20. U.S. Consumer Food Price Changes
Sharp increase in
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

21. 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

22. Livestock Producer vs. Fuel Debate
Higher feed costs reduced profit margins
Livestock producers requested government policy modifications
Source: Chris Hurt, Department of Agricultural Economics, Purdue University, April 2009

23. Ethanol Industry Subsidies
$.54/ gallon import tariff
$.45/gallon blenders subsidy
Some local communities have provided incentives for plant locations

24. The Petroleum & Corn Value Proposition

25. Ethanol Industry Response
Stopped plant construction
Idled some plants
VeraSun filed bankcuptcy and sold some plants

26. 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

27. The Blending Wall Currently 10% blend Relatively few flex-fuel cars
U.S. Blended Motor Gasoline Consumption
Currently 10% blend
Relatively few flex-fuel cars
Approaching maximum ethanol to gasoline use relationship
One of the biggest factors influencing the biofuel industry is the overall usage of fuel. This graph shows the dramatic decline in projected gasoline consumption for this year and next. The higher energy prices earlier this year had a definite impact.
Source: Energy Information Administration

28. U.S. Corn Production & Usage By Category
Source: Steve Meyer, Paragon Economics, Inc., March 2009

29. 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

30. Corn Outlook

31. World Fuel Ethanol Production
USA (corn-based) and
Brazil (sugarcane-based) about equal
Source: Enzyme Use for Corn Fuel Ethanol Production, Novozyme, July 2007

32. Transgenic Crop Adoption
Adoption of Transgenic Corn
Million Hectares
Source: Clive James, ISAA
Source: GMO Compass, October 9, 2008,
Rapid adoption in the Western Hemisphere

33. Transgenic Crop Adoption
Transgenic Corn as Share of Total Area

34. 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

35. 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.

36. Questions?
Thank You!