When you’re part of an industry that represents less than 2 percent of this nation’s population, it’s easy, and often commonplace, to become a target for the remainder of a disgruntled and sometimes angry citizenry. Such is the case in this country with increasing food prices.
The media and several large food companies participating in the Grocery Manufacturers Association’s (GMA) multi-million-dollar attempt to convince policymakers and consumers that domestic ethanol policies drive food prices higher and cause global hunger is the latest example of such an effort.
Ethanol prices have contributed to “skyrocketing” corn prices and higher food prices “across the globe,” GMA says.
The false idea that ethanol production is causing high food prices, and even food shortages around the world has been so frequently asserted, Americans have begun to blindly accept this premise.
Let’s set the record straight.
During the last six years new animals have arrived and are feeding at the corn trough. One is U.S. ethanol plants but others also have bellied up. China, India and other Pacific Rim countries are all consuming more grain and meat as their incomes, along with lifestyles, increase.
Focusing on U.S. feed grain production and use, in 2006, this nation’s farmers produced nearly 11 billion bushels of corn. Of this amount, 1.8 billion bushels went to produce ethanol.
However, making ethanol does not use all of the corn. Ethanol production separates the starch from the rest of the seed. The protein and other nutrients are not used in ethanol production and one-third of the corn is converted to a high-value added livestock feed called distillers grain (by dry milling) or corn gluten feed (by wet milling).
Fingering farmers as one of the main reasons for higher food prices just because they are receiving higher grain prices today doesn’t wash. It’s true grain producers are making more money now because grain prices are high, but this is not contributing significantly to the higher cost of food.
Looking at the total cost of food in this country today, 3 percent is due to the cost of grain. Of this 3 percent, 1.2 percent is due to ethanol. The remaining 97 percent can be attributed to energy, processing, packaging, advertising, overhead, labor, taxes, transportation and other costs.
“It’s so tiny it’s astonishing,” says Richard Perrin, University of Nebraska agricultural economist.
Perrin recently did an assessment on ethanol and grain prices and their impact on the price of food paid at the grocery store and in restaurants in this country.
“What I have concluded from my study is if grain prices doubled, it would add an additional 3 percent onto our food prices,” Perrin says.
If ethanol production accounts for so little of today’s sharp increases in grain and food prices then who is responsible?
The single most important factor driving inflation, not just in food, but all industries of the U.S. economy is oil. Weighing in at $126 a barrel, oil is having a devastating impact in the production and distribution of the food consumers eat in this country and around the world.
Higher food prices are also the result of unusually low world grain production, the value of our falling dollar and speculative activity.
The causes of food prices going up are many. However, the role ethanol plays is miniscule when compared to the others. The U. S. ethanol industry has been involved in finding and developing domestic energy sources for nearly 30 years.
Today, this ethanol is helping reduce dependence on expensive foreign oil and helping keep the price of gasoline down by $.29 to $.40 per gallon. Ethanol production also is contributing back to food production in the form of distiller’s grain – a high quality livestock feed.
It is important these positive impacts are considered as people evaluate the current energy crunch.
John Schlageck is a leading commentator on agriculture and rural Kansas.
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