The cost of ethanol  

The Australian had an interesting report last week on state ethanol mandates in Australia and some of the political factors driving them - Push for ethanol hits grain supplies.

RISING demand for ethanol in petrol, driven by the green policies of state and federal governments, threatens to cause grain shortages that will challenge the grain and grazing sectors and drive food prices higher.

Farming industry leaders and analysts say the push by governments to ensure 10 per cent of petrol is made up of biofuels such as ethanol will leave the nation critically short of grain.

They claim that despite assurances by the NSW and Queensland governments and the biofuels industry that it would use only plant waste for ethanol, tens of thousands of tonnes of animal feed-quality grain and wheat starch are being used to make the taxpayer-subsidised fuel.

Australian Lot Feeders Association director Dougal Gordon said the nation's biggest ethanol producer, Manildra, had been purchasing up to 50,000 tonnes of feedgrain-quality wheat a year for the past five years for ethanol production, taking it away from use for feeding animals.

"This is grain, not starch by-product," Mr Gordon said. "The NSW Government says it is all by-product, so there is no fuel-versus-food issue, but that's wrong."

Biofuels analyst Geoff Ward said the diversion of grain and starch to ethanol production was adding to the price pressures in industries ranging from livestock feedlots to breweries and processed food manufacturers.

Mr Ward said a 10 per cent ethanol mandate in NSW would have accounted for at least 30 per cent of the total grain production in the state in three of the past seven years. "We simply do not have the climate to sustain an ethanol industry," Mr Ward said.

Queensland and NSW have confirmed plans to boost ethanol use in motor vehicles in defiance of a commonwealth review of biofuel subsidies. Analysts say a 10 per cent mandate in NSW would require the production of 600 million litres of ethanol a year, at a cost to the commonwealth of $230 million in subsidies.

NSW Regional Affairs Minister Tony Kelly has repeatedly insisted that the ethanol at Manildra's Nowra plant is made from waste produced during flour- and starch-making processes. "There is no grain purchased for ethanol," Mr Kelly told The Weekend Australian. "The vast majority of the ethanol comes from waste - a starch by-product. Any other suggestion is spin from Manildra's flour mill competitors or the fuel companies."

Manildra chief Dick Honan was the biggest corporate donor to the NSW ALP last financial year, handing over $312,490, most of it in the lead-up to the March 2007 election.

However, Manildra managing director John Honan, Dick Honan's son, told a Victorian parliamentary inquiry last July that grain was put in the waste stream during ethanol production. Asked what proportion of ethanol output was accounted for by waste at the Nowra plant, Mr Honan said: "Probably something like 50-50."

DURING World War II, legendary BHP chief executive Essington Lewis was put in charge of all Australia's munitions production to meet the unique challenges of the war effort. It is arguable that business needs to be mobilised today to help combat global warming while not adversely affecting world food supplies.

Recent media reports have highlighted the problem of rising food prices around the world, especially in developing countries. Just like fossil fuels, arable land is a finite resource and competition between growing crops for food and for fuel presents ethical questions.

Developing countries assert that rich countries, in their hurry to respond to global warming, are driving up food prices by encouraging the use of crops to produce biofuels rather than feed people. In the US, most of the rise in global corn production from 2004 to 2007 was used for biofuels production.

According to the World Bank's 2008 World Development Report, about a quarter of a tonne of corn — enough to feed a person for a year — is needed to produce 100 litres of ethanol, enough to fill the tank of an SUV once.

UN Secretary-General Ban Ki-moon recently called for an investigation of biofuels as he fears that their proliferation will compromise world food stocks. One of his officials went so far as to declare that biofuels were a "crime against humanity".

The reality is that biofuels can be part of the response to the climate change challenge without reducing food production. And business can play a key role. The focus must be on second-generation biofuels that use crop residues like stalks and husks rather than the grain itself, leaving food stocks unaffected. But much more research is needed.

There are, of course, many advantages to biofuels. Transport fuels account for about 40% of Australia's energy use. All this is hydrocarbon based and most is imported, and subject to the uncertainty of international developments. Second-generation biofuels produced locally, focusing on bioethanol sourced from cellulosic biomass like wheat straw and sugar cane bagasse could be a solution.

Globally, wheat straw is the most abundant cellulosic biomass derived from an agricultural crop. It just so happens that wheat straw is also the most abundant cellulosic biomass in Australia