Ethanol found not guilty in skyrocketing food prices

A truck carrying corn to the Marquis Energy ethanol plant in Hennepin stops at the scalehouse Thursday to be weighed and have its load checked for moisture levels. A recent government report revealed the diversion of corn from the nation’s food supply to the fuel supply was responsible for a small fraction of the total increase in the price of food from April 2007 to April 2008. (BCR photo/Barb Kromphardt)

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One year ago, ethanol was struggling in the court of public opinion. Starving children in Africa were blamed on the diversion of corn from food to fuel, and the Grocery Manufacturers Association released a statement saying federal food-to-fuel mandates had led to more than one-quarter of the nation’s corn to be diverted from food to ethanol production, driving up the price of corn and other commodities to historic highs.

But a recently released report by the Congressional Budget Office, titled “The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions,” found that while increased ethanol production did contribute to rising food prices between April 2007 and April 2008, high energy prices had a much more profound effect on the price of food.

According to the report, food prices increased by 5.1 percent during that time, or five cents on every dollar.

And how much of that was caused by the diversion of corn to ethanol production?

Somewhere between 0.5 and 0.75.

According to the report, “Over the same period, certain other factors – for example, higher energy costs – had a greater effect on food prices than did the use of ethanol as a motor fuel.”

Other factors found to have contributed to the price increase were a growing demand for meat, the depreciation of the U.S. dollar, and concerns about a poor harvest due to unfavorable weather for spring planting.

Agriculture advocates did not hesitate to say, “I told you so.”

On Thursday, Bob Stallman, president of the American Farm Bureau Federation; Roger Johnson, president of the National Farmers Union; and others held a media conference call to discuss the report.

Stallman said the government statistics prove ethanol played only a minimal role in last year’s food price increases.

“These results of the CBO report came as no surprise to Farm Bureau,” Stallman said. “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.”

Johnson agreed.

“The CBO report states what we have known all along,” he said. “America’s farmers are not a significant reason for increasing grocery store prices.”

Johnson said rather than raising prices at the store, ethanol actually saves consumers money.

“Increased ethanol production saved consumers $48 billion at the gas pump in 2007,” he said. “The food cost increase attributable to ethanol is far less, between $6.1 and $9.7 billion per year. In other words, for every extra dollar consumers spent on food, they saved between about $5 and $8 in gasoline cost.”

Agriculture was not the only business happy with the report. Mark Marquis, general manager of Marquis Energy, which runs an ethanol plant in Hennepin, was also glad to see the results of the government report.

Marquis said when the food for fuel debate heated up last year, some people accused ethanol of raising the price of food, but the accusation was clearly shown to be wrong. Marquis said corn hit its peak about July 3 at $7 per bushel, and then dropped to $3.50 during the rest of the year.

“Food prices didn’t drop, so it was obvious they were not due to high corn prices, or food prices would have come down,” Marquis said.

Marquis said the accusations were the result of Big Oil not wanting to compete with ethanol, and Big Food wanting the cheapest corn possible to make its products.

Marquis said based on the figures in the report, ethanol was responsible for the price of a gallon of milk going up by 1.5 cents.

“That’s not very significant for the benefits ethanol provides to our country,” Marquis said. “We think we have a good product, and we think we’ve gotten a bad rap.”

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