Office finds that price of corn and ethanol production had only a slight impact
on the price of food
Jan Shepel
Associate Editor
WASHINGTON
A government report has found that the price of corn and ethanol production had only a minimal effect last year on the run-up in food prices experienced by U.S. consumers. A coalition of farm leaders hopes that message gets through to the public.
In a call with reporters, Bob Stallman, president of the American Farm Bureau, said that higher energy costs have a greater effect on food prices than the use of ethanol.
The report, released last week by the Congressional Budget Office (CBO), found that other factors had a greater effect on food prices than what farmers receive. “In order to find out what causes higher food prices, a close examination of all the components of the food price dollar is necessary,” said Stallman. “It is disingenuous to only look at farm prices.
“These results of the CBO report came as no surprise to Farm Bureau,” said Stallman. “With so many fingers in the till between the farmer and consumer, there are numerous factors responsible for higher food prices, including labor expenses, energy costs, financial speculation, increased demand, weather production losses and the weak U.S. dollar.”
The report concluded that farmers get about 19 cents of every food dollar spent by consumers. Stallman said a legitimate question these days is since corn prices have come down and gasoline prices are lower, why aren’t consumers getting lower prices at the grocery store?
Tom Buis, who now heads Growth Energy and who was until recently the president of the National Farmers Union, agreed that Congress should hold hearings on the price of food. “Hearings last year were designed to blame farmers and were part of a well-financed campaign to blame the ethanol industry and farmers for higher prices. I think they owe us a formal apology,” Buis said.
Roger Johnson, who is now president of the National Farmers Union, said his organization is renewing its call for Congressional hearings in light of the CBO report. “The same committees should be impaneled again to ask them why food prices haven’t gone down,” he said in the same call with reporters.
Johnson said that as he crunched numbers taken from the report, ethanol production was responsible for an increase of from $5 billion to $8 billion in food, but it also saved consumers 34 cents per gallon – $48 billion – at the gas pump. “That’s what ethanol has done for our economy,” he said.
Put another way, Johnson said, for every $1 increase in food prices, consumers saved $5 to $8 at the pump.
National Farmers Union now calculates that for a box of cornflakes costing $2.99, the farmer’s share is 6 cents.
Rick Tolman, CEO of the National Corn Growers Association, said the Congressional report was a welcome one to farmers. “This report says clearly that it’s wrong to blame the food price increases on corn,” he said. “The grocery manufacturers association owes farmers a huge apology.”
Tolman was referring to a multimillion dollar campaign funded by oil companies and the grocery manufacturers group that tried to pin higher food prices on corn and ethanol last year.
The nonpartisan CBO reports that from April 2007 to April 2008, food prices increased by about 5.1 percent. Corn prices from expanded ethanol production only contributed between 0.5 and 0.8 of a percentage point of that amount, the analysts concluded.
Buis said another myth out there is that the U.S. is running out of corn. The country had a 1 billion bushel carryover after all the exports and uses were accounted for last year. It is also inaccurate to make calculations of corn for ethanol production assuming the whole kernel is used on the fuel-making process.
“Thirty percent of the value in the corn kernel is returned to the marketplace in high-quality animal feed,” he said.
Tolman agreed that even with growing amounts of leftover corn, there is no decrease in the price of food. “Corn yields have doubled in the last 30 years and they will do it again in the next 20 years,” he said.
“Corn yields are increasing at an increasing rate,” he added. In 1998, national corn yields averaged 134 bushels and by 2004 the average reached 150 bushels per acre. This year they are projected to 158 bushels per acre, Tolman said.
Despite the new report, that concluded that from 85 percent to 90 percent of the food increase “came from somewhere else” other than commodities or ethanol, powerful interests “continue to spread misinformation,” said Tolman.
Still, all four farm leaders believe that the report will carry a lot of weight with Congress and they hope it will generate as much buzz as last year’s food versus fuel debate.
