First generation biofuels compete

Abstract

Rising petroleum prices during 2005-2008, and passage of the 2007 U.S. Energy Independence and Security Act with a renewable fuel standard of 36 billion gallons of biofuels by 2022, encouraged massive investments in U.S. ethanol plants. Consequently, corn demand increased dramatically and prices tripled. This created a strong positive correlation between petroleum, corn, and food prices resulting in an outcry from U.S. consumers and livestock producers, and food riots in several developing countries. Other factors contributed to higher grain and food prices. Economic growth, especially in Asia, and a weaker U.S. dollar encouraged U.S. grain exports. Investors shifted funds into the commodity's future markets. Higher fuel costs for food processing and transportation put upward pressure on retail food prices. From mid-2008 to mid-2009, petroleum prices fell, the U.S. dollar strengthened, and the world economy entered a serious recession with high unemployment, housing market foreclosures, collapse of the stock market, reduced global trade, and a decline in durable goods and food purchases. Agricultural commodity prices declined about 50%. Biotechnology has had modest impacts on the biofuel sector. Seed corn with traits that help control insects and weeds has been widely adopted by U.S. farmers. Genetically engineered enzymes have reduced ethanol production costs and increased conversion efficiency.