I found this post, written in early 2008, for some reason sitting unpublished in my archives. It is just as relevant today, now that we are through the worst of the economic meltdown, so I'll push the "publish" button in just a moment. I updated the revenue numbers for the US, but otherwise it is unchanged. I note that high farm prices are again putting pressure on the amount of land in the conservation reserve program.
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Just as we reach the point where biological technologies can begin to economically replace the industrial chemistry we have relied on for the last two centuries, the price of raw materials is going through the roof. As explored in my recent article, "Laying the Foundations for a Bio-Economy", the contribution of "genetically modified stuff" to the U.S. economy already amounts to the equivalent of more than 2% of GDP, or north of $300 billion. [See the Biodesic 2011 Bioeconomy Update for the updated revenue numbers.] About 80% of this total is from agriculture and industrial products, where revenues from the latter are growing 15-20% a year. But as more products of industrial biotechnology hit the market, they will compete for more expensive feedstock resources.
The New York Times carried two stories on 9 April that illustrate some of the attendant issues. In, "Harnessing Biology, and Avoiding Oil, for Chemical Goods", Yudhijit Bhattacharjee" gives a short summary of the shift from chemistry to biology for producing everything from plastic to fuel. I've written here before about DuPont's success with Sorona, a plastic made using corn processed by engineered bacteria. By itself, Sorona is already a billion-dollar product. It seems DuPont has discovered additional uses for materials that are produced using biology:
The payoffs from developing biobased chemicals could be huge and unexpected, said Dr. John Pierce, DuPont's vice president for applied biosciences-technology. He pointed to DuPont's synthesis of propanediol, which was pushed along by the company's goal to use the chemical to make Sorona, a stain-resistant textile that does not lose color easily.
Soon DuPont scientists realized that bioderived propanediol could also be used as an ingredient in cosmetics and products for de-icing aircraft. The high-end grades that are now used in cosmetics are less irritating than traditional molecules, Dr. Pierce said, and the industrial grade used in de-icing products is biodegradable, which makes it better than other options.
DuPont is, of course, not the only one in this game. Cathay Industrial Biotech, for example, ships many different polymers composed of long chain dicarboxylic acids, which are derived from corn and used in anticorrosion products for cars. Both firms are buying more corn just as prices for commodities are headed through the roof. Higher prices are now leading U.S farmers to pull land out of conservation programs for use in producing more crops, as described by David Streitfeld in, "As Prices Rise, Farmers Spurn Conservation Program". Corn, wheat, and soy prices are all up, but so are the prices of oil and fertilizer.
Ostensibly, the Conservation Reserve Program pays farmers to keep environmentally sensitive land out of production. In the context of a grain surplus, this has the effect of reducing the total amount of land in production, thereby keeping prices a bit higher. But the surplus of recent decades is over, due in large part to increases in demand in developing countries (see, for example, my post "China and Future Resource Demands").
The utility of keeping lands in conservation programs is debated intensely by a range of interested parties, including farmers, policy makers, conservationists, hunters, and even bakers. From Streitfled's article:
"We're in a crisis here. Do we want to eat, or do we want to worry about the birds?" asked JR Paterakis, a Baltimore baker who said he was so distressed at a meeting last month with Edward T. Schafer, the agriculture secretary, that he stood up and started speaking "vehemently."
The Paterakis bakery, H&S, produces a million loaves of rye bread a week. The baker said he could not find the rye flour he needed at any price.
..."The pipeline for wheat is empty," said Michael Kalupa, a bakery owner in Tampa, Fla., who is president of the Retail Bakers of America. Mr. Kalupa said the price he paid for flour had doubled since October. He cannot afford to absorb the cost and he cannot afford to pass it on. Sales have been falling 16 percent to 20 percent a month since October. He has laid off three employees.
Among farmers, the notion of early releases from conservation contracts is prompting sharp disagreement and even anger. The American Soybean Association is in favor. "We need more food," said John Hoffman, the association's president.
The National Association of Wheat Growers is against, saying it believes "in the sanctity of contracts." It does not want more crops to be grown, because commodity prices might go down.
That is something many of its members say they cannot afford, even with wheat at a robust $9 a bushel. Their own costs have increased, with diesel fuel and fertilizer up sharply. "It would decrease my profit margin, which is slim," said Jeff Krehbiel of Hydro, Okla. "Let's hurt the farmer in order to shut the bakers up, is that what we're saying?"
Mr. Krehbiel said his break-even last year was $4 a bushel. This summer it will be $6.20; the next crop, $7.75.
That a baker in the U.S. can't even find the flour he needs is remarkable, though it may not actually be a harbinger of food shortages. One reason that baker is having trouble is no doubt an increase in demand, and another, equally without doubt, is due to shifting grain production priorities that accommodate increased use of biofuels.
Much in the news the last couple of months has been the assertion that production and use of biofuels is largely responsible for recent increases in food prices. But how much of the price increase is due to shifting crops to fuel use?