Ethanol policy divides Latin America

US efforts to promote ethanol have raised food prices in the region.

Venezuelan President Hugo Chávez calls the boom in ethanol the equivalent of starving the poor "to feed automobiles."

Ethanol, which is derived from crops such as corn or sugar, is seen by some as a green alternative, a rising star on the path toward reducing independence on foreign petroleum. But it's not just Mr. Chávez who is questioning whether the benefits outweigh the unintended consequences.

Now poultry industry executives, who have seen the price of feedstock has gone up; Mexican consumers, facing a 60 percent jump in the cost of tortillas; and even environmentalists, who look at the amount of fertilizer that will be needed to grow extra crops, are wondering aloud whether ethanol will help or hurt Latin American economies.

The South American energy summit that concluded in Venezeula this week provided the latest platform for critics. Even though the debate has been cast as another issue in the long line of ideological battles aligning Chávez and Cuban leader Fidel Castro against the US, some analysts say that their point is larger than political: If the price for staple food items rises across the globe because of demand, Latin America will be one of the hardest hit regions.

"I think people worry that rich Americans are trying to fuel cars at the expense of hungry people in poorer countries," says Janet Larsen, director of research at the Earth Policy Institute in Washington. "This increased push for ethanol production could be an incredible foreign policy blunder."

What we are seeing now, she says, is the beginning of a very long debate. Chávez's comments came shortly after harsh op-eds penned by Mr. Castro who, in his first public statements since falling ill last July, resurfaced to call the US proposal "genocidal."

His words follow mass protests in Mexico, after the price of corn tortillas shot up in January.The South American Energy Summit at Margarita Island was the first meeting between Brazil's President Luiz Inácio Lula da Silva since Chávez lambasted the plan after Mr. Bush visited Brazil last month, when Bush and Lula signed a proposal to promote the industry in the region.

For this meeting, Chávez nuanced his position – saying he is not against ethanol production but against the US plan to use corn to produce it.

"We're not against biofuels," he said. "They are viable alternatives, as long as they don't negatively affect the lives of the inhabitants of the region."

For many analysts, it seemed a retraction of his earlier position that is likely to reduce friction – and ensuing divisions – with Brazil, says Rafael Quiros Corradi, an analyst in Caracas.

But it's more than just a political football. Many in the US share great hope in ethanol's potential. President Bush, during his State of the Union address in January, pushed for more production by 2017 to 35 billion gallons, up from 5 billion gallons last year.

But there is no doubt, says Pat Westhoff, an associate professor of agriculture at the University of Missouri–Columbia, that ethanol production, has contributed to higher food prices. In August the average price paid to US farmers for a bushel of corn was $2.09 – rising to $2.20 in September, $2.54 in October, $2.87 in November, and past $3 in December.

By January, angry Mexicans took to the streets to protest the rising cost of tortillas, the central part of most Mexicans' diet. While many factors contributed to the ballooning Mexican corn industry, US prices are reflected on the international market, Mr. Westhoff says.

Mexico has reacted most strongly to higher food prices, but it could be the beginning of protests across the world. The food vs. fuel debate poses questions about the management and beneficiaries of resources, says Celso Garrido, an economist at the Autonomous Metropolitan University in Mexico.

"Mexico gets great quantity of corn from the US. This will have an impact on the basket of food for the population in Mexico," he says. "It seems that Mexico requires a policy to look at the impact of transferring food to energy."

Food price increases represent far less of an impact on most Americans, since US households, according to United Nations figures, spend 7.3 percent of their consumption expenditure on food, compared to low- and middle-income countries such as Mexico, where the number is 24.5 percent.

At the summit, Chávez drew a distinction between America's emphasis on using food staples to produce ethanol and Brazil's plan to use sugar. "We have always said that the bioethanol project ... that Brazil has had for more than 30 years is very different from the madness that the US president has proposed," he said. "It's completely the opposite," said Chávez. Analysts say producing ethanol from sugar is also more efficient.

Evanan Romero, an international energy consultant in Venezuela, says he doesn't believe that increased ethanol production – whether with corn or sugar – will contribute to drastically higher prices or hunger among the poor. Instead, he sees ethanol as a development opportunity for poor countries that lack substantial natural energy resources.

"Central America will no longer be known as the Banana Republic, but rather the Alcohol Republic," he says, referring to potential production there.