Washington (Platts)--24Jan2008

US taxpayers, by subsidizing the conversion of grain into ethanol, "are,
in effect financing a rise in their own food prices," Lester Brown, chairman
of the Earth Policy Institute, said Thursday in an updated Institute paper on
the link between food prices and ethanol production.

"It is time to end the subsidy for converting food into fuel and to do it
quickly before the deteriorating food situation spirals out of control," Brown
said.

The Earth Policy Institute is a policy think tank with a focus on
sustainable development.

"The US, in a misguided effort to reduce its oil insecurity by converting
grain into fuel for cars, is generating global food insecurity on a scale
never seen before," he said.

Demand for grain used in US ethanol distilleries increased from 54
million tons in 2006 to 81 million tons in 2007, more than double the annual
growth in world demand for grain, according to Brown. "If 80% of the 62
distilleries now under construction [in the US] are completed by late 2008,
grain used to produce fuel for cars will climb to 114 million tons, or 28% of
the projected 2008 US grain harvest," he said.

"Historically, the food and energy economies have been largely separate,
but now with the construction of so many ethanol fuel distilleries, they are
merging," Brown said. "If the food value of grain is less than its fuel value,
the market will move the grain into the energy economy. Thus, as the price of
oil rises, the price of grain follows it upward."

Prices per bushel of corn, wheat and soybeans have exceeded or are close
to record highs, Brown said. Higher commodity prices result in higher food
prices, which "are everywhere on the rise," he said.

"Since budgets of international food aid agencies are set well in advance
a rise in food prices shrinks food assistance," Brown said. "As grain prices
climb, a politics of food scarcity is emerging as exporting countries restrict
exports to limit the rise in domestic food prices."

He also said in a telephone briefing that the mandate in the US to use
increasing levels of corn-based ethanol in gasoline supplies should have a
"cut-off mechanism if the price of corn goes above a certain level. Otherwise
we'll see a consumer revolt."

--Gerald Karey, gerry_karey@platts.com