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The ethanol industry wasted no time fighting back today against another attack by the food industry to blame higher prices on ethanol production.
The newly-formed Growth Energy called on the Grocery Manufacturers Association (GMA) to “discontinue its deceptive attacks on the government’s investment in ethanol and other renewable fuels.” Growth Energy held a press conference shortly after the group “Food Before Fuel,” which is back by GMA, held a press conference calling for an end to all ethanol “subsidies.”
Growth Energy members in turn pointed out that the food companies themselves have been the beneficiary of subsidies, such as the $55 billion being spent this year on federal food assistance programs. “The federal government has an important role in supporting programs that promote the common good,” said Dave Vander Griend, President & CEO of ICM, Inc. and board member of Growth Energy. “Whether by funding anti-poverty programs like food stamps or championing renewable energy that will jumpstart our green economy and create jobs, we believe that it is good public policy to make smart investments for our nation’s future.”
The “Food Before Fuel” group called the press conference today as the “30th anniversary of ethanol subsidies” and referred to ethanol as “30-year-old under employed child” living in our basement. During the Cellulosic Ethanol Summit in Florida, Renewable Fuels Association president Bob Dinneen said, “It’s a cute analogy but the problem is there’s somebody else living in that house and it’s the 120-year-old oil industry that continues to be subsidized,” as well as other energy industries. “There is not a single energy market today that is not heavily subsidized by the government because energy is so darn important to every nation’s economy.”
The National Corn Growers Association was outraged by the attack, which was focused only on corn ethanol. “These same ethanol critics are the ones who virtually promised to reduce food prices immediately, and have failed to do so, even though corn prices and energy prices are down by more than half in the last few weeks,” National Corn Growers Association president Bob Dickey said.
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November 20th, 2008 at 6:47 am
Food Prices
Corn is used as the feedstock for approximately 98% of the ethanol produced in the United States. Brazil uses sugarcane as a feedstock, while China is focusing on using cassava and sweet potatoes as feedstocks for ethanol production. USDA estimates that 3.2 billion bushels of corn (or 24% of the 2007 corn crop) will be used to produce ethanol during the September 2007 to August 2008 corn marketing year. In January, 2002, the price for a bushel of corn was $1.98. In July, 2008, the price for a bushel of corn was $5.61.
Corn is a significant ingredient for meat, dairy, and egg production. However, while increased ethanol production is partially responsible for the increase in corn prices, the real factors driving up retail food prices are: rising demand for processed foods and meat in emerging markets such as China and India; droughts and adverse weather around the world; commodity market speculation; export restrictions by many exporting countries to reduce domestic food price inflation; the declining value of the dollar; and skyrocketing oil prices.
Record high prices for diesel fuel, gasoline, natural gas, and other forms of energy affect costs throughout the food production and marketing chain. Higher energy prices increase producers’ expenditures for fertilizer and fuel, driving up farm production costs and reducing the incentive for farmers to expand production in the face of record high prices. Higher energy prices also increase food processing, marketing, and retailing costs. In 2005, the most recent year for which data are available, direct energy costs and transportation costs accounted for roughly 8 percent of retail food costs. These higher costs, especially if maintained over a long period, tend to be passed on to consumers in the form of higher retail prices.
Historically, food prices have surged during times of higher crude oil prices. Moreover, research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices.
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