June 1, 2007

 

Food concerns forcing China to limit ethanol expansion

 

 

China is restricting the number of ethanol plants in an effort to curb the industry's corn consumption and driving up pork prices as both industries competes for grain commodities.

 

China has sought to skew the competition towards food production as early as last December, slapping controls on the corn-processing industry and suspending all investment projects. It also required future ethanol projects to be approved by state planning agencies.

 

China's industrial use of corn nearly doubled from 2001 and 2005 to reach 23 million tonnes, according to a study released last December by the National Development and Reform Committee. This meant 16.5 percent of the corn harvested in CHina is used for industrial purposes.

 

China's current Five Year Plan calls for biofuels to fulfill 15 percent of the country's transport needs by 2020, resulting in the mushrooming of more ethanol plants in the nation.

 

The increased competition for corn by these plants has driven up feed prices and in turn pork prices.

 

Corn prices are up by nearly 30 percent over the past nine months on the Dalian Commodities Exchange. Meanwhile, China's pork prices has gone up by 29 percent over the past year and the price of live pigs by 71 percent, according to the Agriculture Ministry.

 

The dominant view in Beijing seems to be that China cannot sacrifice food security for energy, said Zhang Zhongjun, deputy head of the Beijing bureau of the United Nations' Food and Agriculture Organization (FAO).

 

The fear might be historical: an estimated 30 million people died due to famine and failed agricultural reforms in the 1960s. Higher inflation was also one reason for the mass demonstrations on June 4th which drew worldwide attention.

 

Beijing has said it would deploy measures to curb rising pork prices.

 

Industry analysts also attributed the current high pork prices to a pig shortage caused by blue-ear disease, which is said to have killed millions of pigs in China, although authorities have admitted to only a few hundred.

 

However, the diversion of more corn supplies towards ethanol production, leading to higher feed prices, may also have discouraged farmers from engaging in pig farming.

 

China's proportion of corn used for non-food purposes, at 16.5 percent, is low, compared to the US, which already uses a third of its corn crop for ethanol alone.

 

China's ethanol production is also estimated to be only a quarter of that in the US.

 

Still, while countries like US and Brazil can afford to divert food supplies to ethanol, China can ill afford to do so, given the lack of water and arable land, Zhang said.

 

While food production remains the prime concern, authorities are still pursuing other ethanol distilling projects and biofuel experiments, this time concentrating on non-food sources such as cassava and jatropha, both of which are not considered food in China.