With the United States importing 65 percent of its oil, gasoline prices hovering near record levels, and a sweltering summer raising concerns about climate change, Congress is debating public policies that encourage the use of alternative fuels for our cars and trucks.
Critics of renewable fuels keep claiming that the production of American ethanol threatens the food supply and raises food prices.|MCT FORUM, By John Block
With the United States importing 65 percent of its oil, gasoline prices hovering near record levels, and a sweltering summer raising concerns about climate change, Congress is debating public policies that encourage the use of alternative fuels for our cars and trucks.
Critics of renewable fuels keep claiming that the production of American ethanol threatens the food supply and raises food prices.
Not true.
There just isn’t any statistical evidence that increased ethanol production results in rising food prices, according to a comprehensive new study by Informa Economics, a world leader in market research on domestic and international agricultural commodities.
Instead, retail food prices are determined by many factors, including supply-chain costs for energy, labor, transportation, packaging and other expenses related to marketing, not farming.
As the nation’s farmers have long suspected, there isn’t a kernel of truth in the urban myth that ethanol production is the major driver of corn prices, and corn prices are a key determinant of food prices.
Using statistical analysis and examining government data and information, the Informa study presents the complex causes of food prices, including five conclusions that refute the simplistic theory that just blames biofuels.
First, corn prices have historically been a statistically insignificant variable in determining what drives consumer food prices.
Second, many other costs have been rising, including labor, packaging, transportation, energy, profits, advertising, depreciation, rent, interest, repairs and business taxes ó and they’re all contributing to rising food prices.
Third, farm products such as corn account for only 11.6 cents out of every food dollar that Americans spend on food ó a decline of 20 percent 1993 according to the latest analysis by the Department of Agriculture.
Fourth, even when it comes to commodities, corn prices have historically had little relationship with the prices for other farm products, such as livestock, poultry, eggs and milk.
And fifth, ethanol isn’t the only factor influencing corn prices ó other determinants include weather events, the declining U.S. dollar, strong export demand and steady feed demand.
In fact, energy costs, including especially oil prices, track more closely than ethanol production with consumer food prices. By replacing imported oil, American ethanol may well do more to hold food prices down than to push them up.
The Informa study (which was funded by the Renewable Fuels Foundation) is the last report to refute the food vs. fuels mythology. The U.S. Department of Agriculture’s Economic Research Service recently reported that while just 11.6 cents of every food dollar Americans spend on food going to farm products of all kinds, the remaining 88.4 cents goes to energy, transportation, packaging, labor and other costs.
Meanwhile, the World Bank, the Congressional Budget Office, and other respected authorities have all concluded that food prices track more closely with energy costs than with the prices for corn and other commodities.
As a former U.S. Secretary of Agriculture, I’m proud that American farmers are the most productive on the planet and, indeed, in all of human history. Producing more than twice as much corn on little more acreage than three decades ago, American farmers are playing a leading part in feeding the world and fueling the nation.
The nation ó and the world ó have a stake in the survival of rural America. We should all be proud that the U.S. ethanol industry supports almost 400,000 working Americans, many in struggling rural communities, and pays $7 billion in federal taxes and $4 billion in state and local taxes, contributing to police and fire departments and school systems.
As this latest economic study shows yet again, the issue isn’t food versus fuel. It’s fact versus fiction.
