New U.S. group defends ethanol in food vs fuel fight

CHICAGO Thu Jul 24, 2008 5:11pm EDT

A process operator shows a handful of corn at the GreenField Ethanol plant in Chatham, Ontario, April 10, 2008. REUTERS/Mark Blinch

A process operator shows a handful of corn at the GreenField Ethanol plant in Chatham, Ontario, April 10, 2008.

Credit: Reuters/Mark Blinch

CHICAGO (Reuters) - A new group is adding its voice to the debate on using crops to produce alternative fuels such as ethanol amid rising food prices and shortages in some countries.

The Alliance for Abundant Food and Energy in Washington D.C. was created by Archer Daniels Midland Co, DuPont Co, Deere & Co, Monsanto Co and the Renewable Fuels Association (www.foodandenergy.org).

"There are critics who are trying to create an either-or decision between food and fuel," said Mark Kornblau, the alliance's executive director. "We believe this is a false choice. Today, more than 90 percent of crops in the United States and around the world are used exclusively for food."

The group believes that agricultural innovation -- such as genetically modified crops -- is the best way to address global hunger, not reducing biofuel production.

Decatur, Illinois-based ADM is one of the world's largest producers of biofuels, and Monsanto is a leading producer of GMO seeds.

Kornblau did not say exactly how much money the founding members contributed but said "the initial budget is in the multimillions."

The food versus fuel debate heated up as U.S. food prices last year saw their biggest increase in 15 years and are forecast to rise by 5 percent this year.

World food prices rose by 40 percent last year, causing food riots, hoarding and bread lines in some countries.

At the heart of the debate is to what degree the popularity of biofuels has contributed to the rapid rise in food prices.

Corn, soybean and wheat prices at the Chicago Board of Trade hit record highs this year amid increased global demand for food, rising oil prices and government mandates for biofuels.

About 34 percent of the U.S. corn crop this year will be used to make ethanol, compared with 23 percent last year, according to the U.S. Agriculture Department.

"Most credible studies say the rising price of food right now can be attributed to the high price of oil," Kornblau said. "To get your Idaho potatoes to Massachusetts or Florida, you have to have them shipped."

Crude oil prices have soared by 70 percent in the past 12 months and hit a record high of $147.27 a barrel on July 11. U.S. oil futures closed at $125.49 a barrel, up $1.05, on Thursday.

The new alliance faces tough opposition. Both livestock and food producers have lobbied to reduce or eliminate subsidies for ethanol. Their efforts may have succeeded to some degree.

The new U.S. farm law cuts the tax credit for corn-based ethanol by 6 cents to 45 cents a gallon beginning in 2009. The law extends the 54-cent import tariff on ethanol through 2010.

Tyson Foods Inc has backed eliminating U.S. ethanol subsidies and has seen its profits hurt by higher feed costs for its poultry, pork and beef processing business.

The Grocery Manufacturers' Association has criticized ethanol for driving up food prices.

(Reporting by Lisa Shumaker, editing by Matthew Lewis)

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