Cars, not people, will claim most of the increase in world grain consumption this year. The U.S. Department of Agriculture projects that world grain use will grow by 20 million tons in 2006. Of this, 14 million tons will be used to produce fuel for cars in the United States, leaving only six million tons to satisfy the world’s growing food needs. In agricultural terms, the world appetite for automotive fuel is insatiable.

Investors are jumping on the highly profitable biofuel bandwagon so fast that hardly a day goes by without another ethanol distillery or biodiesel refinery being announced somewhere in the world. The amount of corn used in U.S. ethanol distilleries has tripled in five years, jumping from 18 million tons in 2001 to an estimated 55 million tons from the 2006 crop.

In some U.S. Corn Belt states, ethanol distilleries are taking over the corn supply. In Iowa, a staggering 55 ethanol plants are operating or have been proposed. Iowa State University economist Bob Wisner observes that if all these plants are built, they would use virtually all the corn grown in Iowa.

Since almost everything we eat can be converted into fuel for automobiles, including wheat, corn, rice, soybeans, and sugarcane, the line between the food and energy economies is disappearing.

Historically, food processors and livestock producers that converted these farm commodities into products for supermarket shelves were the only buyers. Now there is another group, those buying for the ethanol distilleries and biodiesel refineries that supply service stations.

Whenever the food value of a commodity drops below its fuel value, the market will convert it into fuel.

Crop-based fuel production is now concentrated in Brazil, the United States, and Western Europe. The United States and Brazil each produced over four billion gallons (16 billion liters) of ethanol in 2005.
The 55 million tons of U.S. corn going into ethanol this year represent nearly one sixth of the country's grain harvest but will supply only 3 percent of its automotive fuel.

Brazil, the world's largest sugar producer and exporter, is now converting half of its sugar harvest into fuel ethanol. With just 10 percent of the world's sugar harvest going into ethanol, the price of sugar has doubled. Cheap sugar may now be history.

Given the insatiable appetite of cars for fuel, higher grain prices appear inevitable. The only question is when food prices will rise and by how much. Indeed, in recent months, wheat and corn prices have risen by one fifth. For the two billion poorest people in the world, many of whom spend half or more of their income on food, rising grain prices can quickly become life threatening.

The broader risk is that rising food prices could spread hunger and generate political instability in low-income countries that import grain, such as Indonesia, Egypt, Nigeria, and Mexico. This instability could in turn disrupt global economic progress.

If ethanol distillery demand for grain continues its explosive growth, driving grain prices to dangerous highs, the U.S. government may have to intervene in the unfolding global conflict over food between affluent motorists and low-income consumers.