As the Midwest drought ravages corn crops, food security advocates are calling on U.S. EPA to lower the minimum volume of corn ethanol required by law for 2012 and 2013 -- arguing that the federal biofuels mandate will aggravate already-high prices.

The renewable fuel standard (RFS), which maps U.S. biofuel goals for the next two decades, seeks to boost biofuels production to 36 billion gallons by 2022. EPA is responsible for assessing the minimum volumes required each year to reach that amount.

"The toxic combination of a heat wave in the U.S. -- which has decimated corn harvests -- and the unwavering demand for ethanol, driven in the U.S. by the renewable fuels standard, is pushing the price of food higher and higher, with grave risks for poor people all over the world," said Gawain Kripke, director of policy and research for Oxfam America.

"The federal government can ... put an end to the biofuel mandates, which are diverting food into fuel, and work to cut greenhouse gas emissions, which are leading to ever more erratic and extreme weather," he said.

But a recent policy brief by Iowa State University economics professor Bruce Babcock suggests that the situation may not be as severe as environmental and humanitarian groups claim. Despite the devastating drought that has hit corn-producing states, the renewable fuel standard will have only a small effect on future corn prices, he said.

"It turns out it's really the price of gasoline and the profitability of selling ethanol," said Babcock, whose work centers on the effect of market incentives like the RFS on the price of corn. "The mandate has a modest effect."

This is in part due to the flexibility of the mandate, which allows oil companies, obligated under the RFS to blend biofuels with gasoline, to carry over renewable credits from previous years. In Babcock's study, which assumes that 2.4 billion gallons of ethanol is "flexible," this lowers the corn price impact of the RFS this drought year from $1.19 per bushel to 28 cents per bushel.

Rising corn prices have become a critical worry in world agricultural markets. Since skyrocketing to $8 per bushel Monday, corn futures on the Chicago Board of Trade dipped slightly to $7.87 yesterday. Soybean futures, representing the primary source for biodiesel, jumped 2.3 percent to $16.06 a bushel. The price dropped 6.9 percent in the past two days after reaching a record high of $16.92.

The U.N. Food and Agriculture Organization will release its global Food Price Index on Aug. 9.

In his most recent study, Babcock admitted that if the corn yields in reality are lower than what is assumed in the study, the impact of the mandate could be far greater. He released a study last year that found that 36 percent of corn price increases between 2006 and 2009 were linked to market incentives, a figure often cited by corn ethanol opponents.

Climate change more destabilizing than market factors

Scott Faber, vice president for government affairs at the Environmental Working Group, said he believes Babcock's assessment relies too much on assumptions on how oil companies will manage their biofuel credits, known as renewable identification numbers (RINs).

"The administration shouldn't gamble on the behavior of gasoline refiners," he said. "[EPA Administrator] Lisa Jackson has all the power she needs to unilaterally change the mandate for 2012-2013." The minimum volumes set for those years are 13.2 billion and 13.8 billion, respectively.

But Babcock is not the only economist who has questioned the effect that markets have in determining corn prices. A recent paper in Nature Climate Change found that hotter, drier conditions in the near term are more likely to destabilize the price of corn than energy policy or market factors.

However, market forces in combination with climate change could enhance the price sensitivity to climate by 50 percent, the study found (ClimateWire, April 23).

In the United States, rising corn prices will have a negligible affect in the supermarket, said David Lobell, a professor of environmental Earth system science at Stanford University and a fellow at the university's Center on Food Security and the Environment. The price of a corn muffin or a loaf of bread is more tied to packaging, advertising and transportation costs.

But countries that rely on raw grain for subsistence will be more severely affected by rising prices, said Lobell.

Drought fails to silence 'Chicken Littles'

Corn ethanol proponents were thrilled by record high projections in May, when the Agriculture Department predicted 14.79 billion bushels of corn for the 2012-2013 season.

This output, said Matt Hartwig, spokesman for the Renewable Fuels Association, would settle the argument that the ethanol industry is competing with food and feed needs for land and resources.

"With normal growing conditions it is clear that farmers will continue to meet the bell and provide safe, reliable food and clean, domestic fuel and silence those chicken littles that perpetually predict a shortage of corn and catastrophe in the grocery aisle," said Hartwig in an email in May.

Despite the drought and indications of hotter, drier weather for years to come, Hartwig maintains his stance.

"The final crop is not yet in the bin. There will be corn available this fall, and the market will ration its use. The questions will be how much, and how will farmers respond during next year's planting season," he said yesterday. "Now is not the time to implement knee-jerk reactions that arbitrarily reduce RFS requirements based on historically variable corn supply estimates or waive portions of the RFS."