US biofuel production should be suspended, UN says

A heatwave in the US has hit corn production

The United Nations (UN) food agency has called on the United States to suspend its production of biofuel ethanol.

Under US law, 40% of the corn harvest must be used to make biofuel, a quota which the UN says could contribute to a food crisis around the world.

A drought and heatwave across the US has destroyed much of the country's corn crop, driving up prices.

The US argues that producing much of its own fuel, rather than importing it, is good for the country.

The latest forecasts from the US Department of Agriculture (USDA) suggest that this year's corn yield - the amount produced per acre - will be the lowest since 1995-6.

Total production will be the lowest for six years, it forecast, due to the extreme heat and dryness.

As a result, the USDA is predicting further rises in prices. It now thinks farm prices for corn will average $7.50-$8.90 per bushel, a sharp rise on the $5.40-$6.40 per bushel it predicted just a month ago.

Writing in the Financial Times, the director general of the United Nations' Food and Agriculture Organization (FAO), Jose Graziano da Silva, said suspension of the quota would allow more of the crop to be diverted for food production.

"The worst drought for 50 years is inflicting huge damage on the US maize crop, with serious consequences for the overall international food supply.

"The situation reminds us that even the most advanced agricultural systems are subject to the vagaries of the weather, leading to volatility in supplies and prices, not just on domestic markets, but also internationally."

Cheaper fuel

Concerns about the impact of the dry weather in the US pushed maize prices up by 23% in July, according to the latest FAO food price index.

But the US Agriculture Secretary Tom Vilsack said the biofuels standard was having a positive impact on the country.

"It is impacting in a positive way the cost of gasoline in this country - some estimates put it at 25 cents to as much as $1.30 less for gas because we have a biofuel industry.

"There are jobs connected to that industry and less reliance on foreign oil. The question is: Is the market responding to concerns about supply and the answer is yes.

"Exports are down just a bit and ethanol production is down from between 10% and 30%, depending on the part of the country."

By law, 13 billion gallons of biofuel must be produced in the US this year. The country's Renewable Fuel Standard, as the law is known, was designed to reduce greenhouse gas emissions and dependence on imported oil. It has long been controversial, with many blaming the quota for pushing up corn prices.

The United Nations is not alone in calling for the quota to be suspended. Livestock producers in the US, worried about the cost of cattle feed, also want it scrapped and the governments of China, India and France have expressed concerns about the policy.