2010-07-08 11:51

Food supply concerns triggered by the lingering drought and floods that swept China this year have left the country in what appears to be a dilemma about developing clean energy produced with food and ensuring the country's food security.

The Shanghai Securities News said on Wednesday the price of corn, which is the main ingredient in producing fuel ethanol, has increased 20 percent year-on-year.

Corn output reduction caused by this year's disastrous weather is a factor in the price surge, while the demand from fuel ethanol producing companies is also suspected of having fueled the price increase.

"Producing fuel ethanol has not only cost plenty of food but also doesn't help much in ensuring China's energy security," said Zhao Youshan, head of the petroleum distribution committee of the China General Chamber of Commerce.

"Relevant programs should be stopped, and subsidies (to fuel ethanol producing companies) should be canceled, too," Zhao said.

The subsidies Zhao mentioned went into effect in 2004, when the country decided in a pilot program in four regions to not only exempt taxes but also subsidize fuel ethanol producing firms 1,880 yuan ($280) for each ton of fuel ethanol produced, in a bid to promote the development of new energy.

The tax exemption and subsidy triggered record high enthusiasm for producing fuel ethanol around the country, with the total of the fuel surpassing 10 million tons from 2004 to 2006. And in 2006, the country ranked third in the world with its fuel ethanol production capacity.

From 2004 to 2006, the price of corn was greatly influenced by the massive production of fuel ethanol, which drove many farmers of other crops to plant corn.

The State Council, China's cabinet, put a stop to fuel ethanol projects that were under construction in 2007. But the subsidy was not ceased, and some fuel ethanol projects that should have been canceled emerged again.

"This year's situation is dangerous," Zhao said. "On the one hand, northern and southern parts of China were alternatively swept by severe drought and flooding this year, making it certain some areas will face food reduction.

"On the other hand, some areas' fuel ethanol firms rush to purchase food, some furtively."

"China's food security will be under a great threat if the situation continues," Zhao said.

Zhao said he handed in a report to the State Council last month to suggest a stop to the pilot program and a cancelation of the subsidies to fuel ethanol production.