Paean to a shwarma

If you watch TV, you must know that unvarying campaign against gratuitous slaughter on the roads - "If you drink, don't drive".

What's happening in the world ethanol market, and as a corollary in the world corn market, might be described by a paraphrased version: "If you eat, don't drive".

The United States wants to wean itself off oil, which is expensive and is linked with global warming. Also, it has to be imported. So the U.S. is striving, with the encouragement of the Washington team, to create an industry of making alternative fuels.

One of the mainstays of this industry is ethanol. That is a sort of alcohol that can be used to fuel cars with relatively little adjustment. It isn't hard to make ethanol, either, from sources like cane sugar (in Brazil) or corn (the U.S.).

Unlike oil, which is available in limited capacity and is mostly held in non-American hands, corn and cane sugar can be grown and grown again. Also, America and Brazil have vast areas of land to grow them.

But like in so many things, there's many a slip 'tween the cup and the lip.

The price of corn

Fillet 'er up

The main problem with ethanol is the raw materials used to make it. Unlike gasoline, which is made from oil that has no other use, ethanol is made from corn or sugar that otherwise would have another use: to be eaten.

Like many other grains, corn is the main raw material in making concentrated protein in the form we call "fillet steak", "chicken schnitzel" or "turkey shwarma". These packets of protein are based on beef or birds that have been industrialized. A process turns many kilograms or raw materials such as corn into few kilograms of steak, kebab or shwarma.

The energy ratio, input versus output, in turning corn into bird burgers would cause any efficiency expert to tear out his hair at the hideous waste of energy. The amount of energy measured in kilo/calories that a hen needs in its prematurely truncated life, until it is roasted with or without paprika and pepper, is tens of times higher than the amount of energy that the eater of said fowl will gain. And most of the energy invested in that chicken is in the form of corn.

Ironically enough, in most cases, the low caloric content of that unhappy avian is the very cause of her death, because of the mushrooming demand for low-calorie foods.

Don't get me wrong. I do not come to preach veganism. But the facts of life are the facts and they should be known, irrespective of the requisite implications for one's health or sleep at night.

What we have is carnivores and drivers competing over the same resource: corn. The inevitable result is that its price has soared, because of the growing use of ethanol for energy, and (naturally) expectations of more use in the future. The price of these tasty yellow kernels has risen to $4 per bushel, versus two and a bit just a year ago.

And that hurts the profits of cattle and fowl farmers, who are starting to roll the pain over onto the food companies, which in turn are rolling them over onto meat eaters.

Just to nip Chavez

Like in any drama worthy of its name, the main story of the brawl over ethanol versus shwarma is supported by amusing secondary tales, centered on various personalities.

The ethanol tales also came up during George Bush's recent visit to South America, mainly Brazil. 

One of his purposes was to bolster relations between the two biggest ethanol producers in the world, the U.S. and Brazil. Some even called it the new OPEC of ethanol producers. Actually, what they really wanted was to clip the wings of Venezuelan president Hugo Chavez, whose power derives mainly from that country's vast reserves of oil.

The resultant ethanol pact was a feeble thing, regarding mostly cooperation on knowhow and research. The superlatives can be put back in the drawer.

One crop a year

Brazil is a world leader in ethanol use. It first tried to introduce ethanol as fuel nationwide in the 1970s, but it didn't work because cars were less flexible about using alternative fuels. People who bought ethanol-fueled cars couldn't use gasoline.

Therefore, ethanol cars often stood uselessly for months, stranded, because of problems in ethanol production. But things are different today. Now cars can be switched from one fuel to the other without a problem, and drivers don't have to fear months of watching the car sit on its wheels.

Brazil has a great advantage over the U.S. in ethanol production: its raw material is cane sugar, which has two upsides compared with corn. One: it produces more ethanol per area of farmland. Two: the climate.

Brazil is tropical and sun-washed. Cane sugar can grow all year. Corn grows in places like Iowa and Nebraska, which have long freezing winter seasons. There is one crop a year and that's it.

One might conclude, given the advantage of sugar over corn, that it would pay for the U.S. to import ethanol from Brazil. But that isn't how life works.

The agricultural lobby in the U.S. is very powerful. The idea of importing agricultural products to the U.S. is heresy to it. If anything the lobby is agitating against lowering today's tough protective barriers.

Surprisingly, environmentalists - who also have clout in Washington - oppose widespread use of ethanol. It does pollute the environment less than gasoline, and results in less greenhouse-gas emissions. But to grow the amounts of cane sugar and corn that would be needed, vast tracts of rainforest and trees would have to come down. Enormous amounts of fresh water would be too, not to mention all that use of pesticides and fertilizers. That is, to put it mildly, not a way to protect the environment.

Chavez reacted to Bush's junket to Brazil in typical style, saying the U.S. was trying to exploit the fertile lands of South America, and its water resources, not to feed humans, but to feed its cars, thus preserving the famous "American way".

The Venezuelan leader may supply his opponents with plenty of reason not to like him, but you can't ignore the truth in that latest salvo. The American way, which much of the world would adore to adopt, is based in part on enormous consumption of resources. You need a lot of steaks and gasoline to keep it rolling on.

In energy consumption + protein from animal sources  - America is the world leader. Now the components of its equation are at war. This is a development that the Americans, and people aspiring to its lifestyle, will have to get used to.

Doron Tsur is CEO of Compass Mutual Funds.

The writer and his company may hold securities, including ones mentioned in this article. In no case should this article be perceived as a recommendation to buy or sell securities. Any such action is the responsibility of the reader alone.