A study released by Iowa State University's Center for Agricultural and Rural Development (CARD) points to the threat of increased food prices as a result of the expanding ethanol production in the US Corn Belt.

Emerging Biofuels: Outlook of Effects on U.S. Grain, Oilseed and Livestock Markets, states that the increased price of corn due to subsidized ethanol production is already being felt by the livestock sector, but the worst may be yet to come. The study examined several possible scenarios and their effects on food prices.

The Iowa State researchers predict that a $10 per barrel increase in the price of oil would double ethanol production in the Corn Belt, resulting in higher feed costs and a 4 percent increase in meat prices.

The group also looked at the impact that a drought, such as the one that hit the Corn Belt in 1988, would have on food prices. Higher corn prices resulting from a drought would normally result in ethanol plant closings as these become unprofitable. Yet with a federal ethanol mandate in place, plants would simply pass on the increased prices to blenders and continue to operate at any cost. The study predicts that under this scenario corn prices could increase by 40 percent, causing a 5 percent rise in meat prices.

The study also suggests that, under the current system of subsidies, cellulosic ethanol from switchgrass cannot compete with ethanol made from corn. The reason for this is that switchgrass competes with corn for land, and with current cellulosic ethanol technology being less effective than the technology used to produce corn-based ethanol, it is simply more profitable to grow corn.

The researchers found that this was true regardless of the price of ethanol, because although higher ethanol prices allow ethanol plants to pay more for switchgrass, it also allows them to pay more for corn. According to the study, cellulosic ethanol made from switchgrass "will make economic sense (in the corn belt) only if it receives an additional subsidy that is not provided for corn-based ethanol."