Don’t blame ethanol for higher food prices

It’s only natural that consumers want to know why prices are increasing at their neighborhood grocery. The big oil lobby and a host of special interest groups have begun promulgating the myth that increased ethanol production, and its demand for corn crops, is responsible for increased food costs. It’s a gross oversimplification, and in fact, it’s plain wrong.

According the U.S. Department of Agriculture, non-farm costs including marketing, processing, wholesaling, distribution and retailing account for 80 cents of every food dollar spent in the United States. An 18-ounce box of corn flakes is priced at $3.70 in Washington, D.C. grocery stores. The farmer’s net share of that total? Five cents. There is a lot more at play than corn prices. Furthermore, Americans spend less on food than anywhere else in the world. Of every dollar Americans spend, just 9.9 cents is spent on food.

In fact, a recent study published by the Renewable Fuels Association found that energy costs, and not the price of corn, are the major culprit for moderately rising consumer food prices. According to the report, rising energy prices have twice the impact on the Consumer Price Index (CPI) for food than the price of corn. The report states, “Corn and energy prices both affect consumer food prices. However, since increases in corn prices are limited to a relatively small portion of the overall CPI for food, an increase in corn prices resulting from higher ethanol demand or a supply disruption such as a major drought is expected to have about half the impact of the same percentage increase in petroleum and energy prices.”

Beyond rising energy costs, inflation also leads to increases in food prices. According to the Bureau of Labor Statistics, 25-year average annual food inflation rests at about 2.9 percent. Over two years, from June 2005 to June 2007, American consumers saw prices increase 3.4 percent. Food prices have always and will continue to increase. Government statistics confirm that the increase consumers face is standard.

America’s farmers are working hard to reduce our energy dependence by supporting renewable energy projects such as ethanol, wind and biodiesel by growing the commodities necessary to support both the food industry and the fuel industry. On June 29, the USDA released a report indicating that U.S. farmers planted 92.9 million acres of corn in 2007. This is the largest corn crop since 1944. It surpasses last year’s acreage by 19 percent and USDA’s own March projection by 3 percent. Simply put, farmers are responding to meet the needs of increased market demands.

Further, it is a false premise to say that corn used for ethanol means less feed options for livestock producers. Ethanol plants make two products — ethanol and high-quality distiller grains that are an excellent feed source for livestock. Only the starch from a corn kernel is used to produce ethanol. The remaining two-thirds of each kernel contain significant proteins that are highly valued in the world’s food and feed market. It’s also important to note that corn is one of many components in livestock feed, and only a small portion of the overall livestock cultivation input costs.

Adding further perspective to this issue is a report released by Tufts University in February that showed that the concentrated livestock industry has benefited significantly from low-input prices. From 1997 to 2005, corn was priced 23 percent below the cost of production — leaving farmers reliant on federal commodity support payments to make ends meet. In contrast, the study concludes that the broiler chicken industry saved $11.25 billion and the industrial hog industry saved approximately $8.5 billion over the nine-year period because of these low prices.

Yes, it is true farmers are receiving higher prices for the corn they produce today. And, we should not apologize for it. Instead of relying on government subsidies, farmers are able to get a good price from the marketplace.

America’s family farmers and ranchers have been feeding the world for more than 200 years. Increasingly, we are helping our nation become less dependent on foreign oil from some of the most unstable regions of the world by producing home-grown renewable energy. Ethanol production is a lifeline for many struggling rural communities. Ever-increasing ethanol plants are the reason you see the boards coming off the windows of once-struggling rural Main Street businesses. Increased ethanol production is creating economic opportunities for rural communities, restoring profitability to family farmers and ranchers, and providing a clean, safe renewable fuel for our nation’s future.

As a nation, it makes sense for our government to continue investing in research and technology, and to support federal programs that encourage renewable energy production as a means to reduce our addiction to oil.

Buis is president of the National Farmers Union.