Domestic Fuel

According to the American Farm Bureau Federation (AFBF), the retail cost of menu items for a classic Thanksgiving dinner including turkey, stuffing, cranberries, pumpkin pie and all the basic trimmings increased about 13 percent this year. That’s still less than $50 to feed ten people – not even $5 per person.

The turkey itself is what gobbled up most of the price increase this year. According to AFBF, a 16-pound turkey will cost about $21.57 this year at $1.35 per pound, an increase of about 25 cents per pound over last year. That triggered some misinformed columnists to start crying fowl and place the blame for the higher price on ethanol, as pointed out in a blog post from Growth Energy.

“Our biofuels policies are a big cause of the rising cost of food in recent years, and it just feels wrong to use food for fuel with so many families struggling to feed their families,” wrote Marie Brill of ActionAid in the Huffington Post, adding that “federal ethanol subsidies … are driving up the price of everything from eggs to milk to — yes, turkeys — and undoubtedly, some families will just have to go without.”

However, AFBF economist John Anderson says it’s more a case of basic economics – supply and demand. “Turkey prices are higher this year primarily due to strong consumer demand both here in the U.S. and globally,” said Anderson.

A more well-rounded and less emotional look at the cost of turkey comes from New York Times’ Wealth Matters columnist Paul Sullivan. “It turns out that turkey pricing is not much tied to commodities prices. Instead, other factors, like tight margins for farmers and perceptions of value, play a much bigger role,” he explains. “For most of us, the price we pay for our turkey bears little relation to what it costs to raise it.”

Read “Let’s Talk Turkey” from Growth Energy.

Two reports released earlier this week concluded that commodity market speculation is largely to blame for increasing prices of food and energy. The reports were issued in advance of the October 18 meeting of the Commodities Futures and Trading Commission (CFTC) which placed limits on speculation in a variety of commodities including oil, corn, gold and natural gas.

One report came from the non-profit organization Better Markets, which concluded, “Research analyzing commodity markets for the last 27 years shows that Wall Street’s speculative trading through commodity index funds is causing market disruptions, interfering with price discovery, increasing the costs for businesses to hedge, and needlessly pushing prices higher for all Americans.”

A second report from economic analysis firm Cardno Entrix had similar findings, concluding that commodity prices are “likely higher than justified purely by fundamentals and the commodity markets have become more volatile as the volume of trading by index funds and other non-commercial traders has increased sharply.”

In examining the activity of speculators in the corn futures market in the context of supply and demand fundamentals, the Cardno Entrix report found that “speculation is a major factor behind the recent sharp increase in both the level and volatility of corn prices.”

At this week’s CFTC meeting, federal regulators decided to cap the volume of futures trading for 28 different agricultural commodities, energy and metals in the hopes of limiting the impact of speculative trading on consumer prices.

The Global Renewable Fuels Alliance (GRFA) is calling comments made this week by a Qatari government advisor about biofuels contributing to world hunger “self-serving.”

At a global grains summit in Turkey on Monday, Quatari food security program advisor Mahendra Shah was quoted as saying, “Biofuels will trigger an increase in agricultural prices. Biofuels will result in another 120 million people hungry, just because we’re growing biofuels.” He cited a study by the Organization of the Petroleum Exporting Countries Fund for International Development (OFID) which claims the use of crops for biofuels is forecast to raise food prices by 30 percent to 50 percent by 2050.

Noting that the report cited was funded by OPEC’s International Development arm, GRFA spokesperson, Bliss Baker said, “This so-called report from 2009 cannot withstand any level of academic scrutiny and is a self serving attempt to distract people from the real impact that energy prices are having on global commodities.”

“Qatar, a key OPEC member and promoter of this report, derives 85% of its export earnings and over 70% of its government revenues from crude oil. Qatar’s agenda is to promote crude oil and discredit alternatives like biofuels,” Baker added.

According to GRFA, there is evidence that demonstrates that the OFID report is wrong, including a 2011 study by the International Energy Agency that says “by 2050, biofuels could provide 27% of total transport fuel” and will “not compromise food security”. The GRFA recently published data showing a clear and direct link between crude oil prices and the UN FAO’s Food Price Index.

A new report from Informa Economics released today concludes that ethanol production is not causing a “strict food-versus-fuel tradeoff” that automatically drives consumer food prices higher.

The report, which was prepared for the Renewable Fuels Foundation, is an historical analysis of corn, commodity and consumer prices from 1985-2010. One of the key findings of the study was that no single factor has been responsible for higher consumer food prices over time, “but rather, there is a complex and interrelated set of factors that contribute to food prices.”

The report also found that other supply and demand factor besides ethanol, such as increased exports, have also contributed to the rise in the commodity price for corn. “Furthermore, corn prices have a relatively weak correlation with food prices, as the farm share is a relatively small portion of the overall retail food dollar and for many products corn is only a portion of the farm value,” said report author Bruce Scherr, CEO and Chairman of Informa Economics.

“Yet again, sound analysis has demonstrated that the farcical food-versus-fuel debate is just that – a joke,” said Renewable Fuels Association President and CEO Bob Dinneen. “Unfortunately, the effort to scapegoat ethanol in order to continue our addiction to imported oil is not funny. The fact remains that no statistical evidence exists demonstrating a significant link between ethanol, corn prices, and rising food costs.”

Agriculture Secretary Tom Vilsack says he intends to defend biofuels at the G-20 Summit of Agricultural Ministers in Paris this week, stressing their importance to the economy and the environment.

“America is working on developing new feedstocks that don’t pit food versus fuel but that create new rural economic opportunities and allow us to continue to expand on our efforts to build a much more renewable energy source,” said Vilsack, who is attending the Paris Air Show prior to the G20 meeting to discuss biofuels for aircraft that can be made from dedicated energy crops.

The focus of the summit is on international efforts to ensure global food security and some groups are insisting that necessitates a change in biofuels policies. Oxfam is calling on Vilsack and the agriculture ministers of the other G20 countries to “urgently remove the types of biofuels subsidies and mandates that are leading to increased price volatility.”

The biofuels industry meanwhile is urging the ministers to examine the impact of crude oil price on food price volatility.

“It is imperative that the G20’s Agriculture Ministers use this first meeting to recognize that there is a direct and strong correlation between the price of crude oil and the price of food,” stated Bliss Baker, spokesperson for the Global Renewable Fuels Alliance (GRFA).

This will be the first meeting of all agricultural ministers in the Group of Twenty (G-20), which includes the United States, Argentina, Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudia Arabia, South Africa, the Republic of Korea, Turkey and the United Kingdom.

Our latest ZimmPoll asked the question, “What causes higher food prices?” Most people responding seem to believe it’s a combination of factors – 47%. That’s followed by higher gas/energy costs at 23%, speculators at 18%, ethanol at 9% and weather at 3%. I wonder how the response would compare to an audience for a general news website like Fox or CNN. It sure doesn’t look like biofuels like ethanol are considered to be at fault. However, if you consider it to be a combination of factors, what would those be? Feel free to leave a comment.

Our new ZimmPoll is now live and asks the question, “How do farmers compare in social media use?” Let us know what you think and thanks for your your participation.

And if you have any questions you want to suggest for future ZimmPolls please let us know.

ZimmPoll is sponsored by Rhea+Kaiser, a full-service advertising/public relations agency.

The Global Renewable Fuels Alliance (GRFA) is calling on delegates to the United Nations Food and Agriculture Organization (UNFAO) meeting in Rome to focus on the price of oil as the real driver behind rising food costs.

Last week while addressing the South American renewable fuels industry in Buenos Aires, GRFA spokesperson Bliss Baker presented data showing the direct link between the recent increase in crude oil prices and the UN FAO’s world food price index.

“There is very clear evidence that oil prices are continuing to have a disproportionate affect on the price of our food,” said Bliss Baker. The UNFAO’s Deputy Director, David Hallam confirmed this same finding in early March by saying that “unexpected oil price spikes could further exacerbate an already precarious situation in food markets.”

In January of this year the UN FAO’s global food price index hit an all time high which provoked angry responses from several other organizations concerned with food security. World Bank managing director, Ngozi Okonjo-Iweala said, “food prices are not only rising, but they are also volatile and will continue this way into the future.” The International Energy Agency called rising oil prices “dangerous” warning that high oil prices could threaten the stability of an already fragile recovering global economy.

Read more from GRFA

The Renewable Fuels Association (RFA) hosted a webinar this morning to discuss the new USDA Prospective Planting and Grain Stocks reports and what they indicate for America’s supply of corn and how demand from ethanol production might play into food pricing this year.

Some of the main points made by RFA VP of Research and Analysis Geoff Cooper about the reports relative to ethanol and food prices are:

1. The additional corn acreage is coming through crop switching, not land expansion
2. An average 159.7 bushels per acre will maintain current carry-out levels
3. 2011 ethanol production expected at 13.8-14 bg; about 5 billion bushels of corn
4. USDA is likely underestimating ethanol yield
5. On net basis, ethanol using only 23% of the 10/11 corn supply – not 40%
6. Food price inflation expected to be in line with average of 3.4%
7. Energy prices and speculation more important factors in food price increases
8. Corn is a minor cost component of most retail food items
9. Just 12 cents of every retail food dollar goes to the farm level
11. U.S. corn exports have not declined as ethanol use has expanded
12. U.S. ethanol uses 3% of world grain supply; grain not being “diverted” for fuel use

Cooper notes that the USDA prospective plantings report should be taken “with a grain of salt” since it only indicates farmers’ current intentions and will likely change as planting season gets underway.

Link to RFA power point presentation.

Listen to Geoff Cooper’s presentation here: RFA's Geoff Cooper on USDA report

Ethanol production probably had less impact on global commodity prices in 2008 than many were saying at the time.

A newly released working paper, entitled “Placing the 2006/08 Commodity Price Boom into Perspective,” from the Development Prospects Group at the World Bank, concludes that “…the effect of biofuels on food prices has not been as large as originally thought.”

Authors of the report, John Baffes and Tassos Haniotis, argue that energy prices, as well as speculation, played significant roles in the non-energy commodity price spikes seen in the recent past. “We conclude that a stronger link between energy and non‐energy commodity prices is likely to have been the dominant influence on developments in commodity, and especially food, markets,” says the report. “Demand by developing countries is unlikely to have put additional pressure on the prices of food commodities, although it may have created such pressure indirectly through energy prices.”

Another point they make is that biofuels only represent 1.5 percent of worldwide grain and oilseed use. “This raises serious doubts about claims that biofuels account for a big shift in global demand. Even though widespread perceptions about such a shift played a big role during the recent commodity price boom, it is striking that maize prices hardly moved during the first period of increase in US ethanol production, and oilseed prices dropped when the EU increased impressively its use of biodiesel. On the other hand, prices spiked while ethanol use was slowing down in the US and biodiesel use was stabilizing in the EU.”

In a 2008 Policy Research Working Paper, authored by Donald Mitchell, lead economist for the World Bank’s Development Prospects Group, which claimed 70-75 percent of the increase in food prices that year was due to biofuels and the related consequences of low grain stocks, large land use shifts, speculative activity and export bans.

So, this new paper is a big about-face from the 2008 view and actually says what most biofuels advocates were saying all along, according to Renewable Fuels Association president Bob Dinneen. “In reversing course, this World Bank report reaffirms the marginal role biofuels play in world commodity and food prices,” said Dinneen. “The RFA has long noted that ethanol production has continued to increase while corn prices have now returned to normal levels. Volatile oil prices, speculation, and adverse weather conditions all played far more significant roles in driving commodity prices to record and near record prices.”

Growth Energy CEO Tom Buis praised the World Bank for setting the record straight. “This study clearly shows that the notion of food-versus-fuel was simply wrong,” said Buis. “Food-versus-fuel has always been and will always be nothing more than a myth. We hope that this report will encourage others who have relentlessly perpetuated this untruth to admit their mistakes and put an end to this false debate.”

It is interesting to note that these “working papers,” although released by the World Bank, done by World Bank economists and posted on the World Bank website, come with a disclaimer that says they represent “work in progress” and that the findings “are entirely those of the authors” and do not necessarily represent the views of the World Bank.

Link to July 2008 working paper.
Link to July 2010 Working Paper.

The ethanol industry was quick to respond to a Bloomberg Business Week article Monday that places the blame for the current hike in meat prices solely on using corn for ethanol.

The story quotes several meat industry representatives who state that current higher meat prices are “ethanol-induced” – the result of hog and cattle herds that were reduced in 2008 due because demand for more ethanol drove up the cost of feed.

Jumping to the defense of corn ethanol, Growth Energy CEO Tom Buis said the story “accepts as fact a disproven myth that ethanol somehow drives up food prices — the goal of a carefully coordinated propaganda campaign that is not based on truth.”

In fact, the Congressional Budget Office report released in April 2009 and a recent report from the UK found that it was mainly higher oil prices that drove prices for both food and feed higher in 2008. That was proven true last year when the amount of corn used for ethanol increased from 2008, but feed and food prices went down.

The completely one-sided article belatedly added a short paragraph with a response from the ethanol industry. Ethanol producers say their industry is unfairly blamed for the record feed costs of 2008. The surge reflected “wild speculation in the markets and the surge of index funds” rather than the jump in corn use for fuel, said Chris Thorne, a spokesman for Growth Energy, a Washington-based ethanol trade group. “Grain producers in this country will more than meet all expected demand for export, for food, for livestock feed and certainly for fuel.” That was added as an update in paragraph 22 some time after the original story was released on line.

The Grocery Manufacturers Association (GMA) and fellow ethanol foes have been fairly quiet since food prices began moderating last year, but the coalition has gotten back into action this past week with a new campaign opposing E15.

A scathing editorial in the Washington Times Monday followed directly on the heels of a full-page ad in “The Hill” last week sponsored by GMA, the American Meat Institute, the Snack Food Association, the International Dairy Foods Association, and other groups representing oil companies, environmentalists and boat manufacturers. The editorial attacks “Big Corn” for claiming “that forcing Americans to use this renewable fuel would reduce dependency on Mideast oil and lead to cleaner air. It’s just as likely, however, that they want to get their hands on the $16 billion a year from the 45-cent-per-gallon “blender’s tax credit” – which actually goes to oil companies who blend ethanol with gasoline, not farmers.

The editorial states that increasing the use of ethanol will increase food prices, damage engines and have little or no impact on cutting the pollution in the air. Growth Energy, which filed the petition with EPA last year to increase the blend level for ethanol in gasoline to 15 percent, issued a response to the editorial charging that those conclusions are based on “obsolete information, ethanol myths and scare tactics.”

“First, technological advancements in the agriculture industry have made ethanol production more efficient than ever before. The latest crop forecasts prove that our farmers can produce more than enough grain to satisfy all the demand for food, fuel and feed in this country without increasing prices at the grocery store,” said Growth Energy CEO Tom Buis. “Second, exhaustive data has proven that engine performance and durability do not suffer from higher ethanol blends. According to a newly-released Rochester Institute of Technology study, E20 – a blend of 20-percent ethanol with gasoline – has no measurable impact on vehicle drivability or durability, and lower tailpipe emissions compared to conventional gasoline.

“Lastly, the editorial overlooks the economic and environmental benefits associated with higher blends of ethanol. A national study by the Windmill Group, out of North Dakota, estimated that moving from blends of E10 to E15 would create 136,000 jobs in the United States and help reduce our green house gas emissions. Science proves that grain ethanol is a low-carbon fuel that produces 59 percent fewer green house gas emissions than gasoline.”

The coalition behind the ad in “The Hill” has introduced a website called FollowTheScience.org that claims ethanol is bad for engines, the environment, food prices and even rural communities. One of the sources they offer as proof that ethanol impacts food prices and rural communities is the Congressional Budget Office report released in April 2009 which concluded that ethanol had only a small impact on higher food costs, while high oil prices had the most impact. A recent report from the UK came up with the same conclusion and noted that the biggest driver for higher commodity prices at the time was fuel and fertilizer, which account for over half of the input costs for crop farmers.

A new report commissioned by the UK’s Department for Environment, Food and Rural Affairs (DEFRA) has concluded that drought and high oil prices, not biofuels, were behind the so-called food crisis of 2007/2008.

“Available evidence suggests that biofuels had a relatively small contribution to the 2008 spike in agricultural commodity prices,” the report noted. “Studies which have found a large biofuel impact across agricultural commodities have often considered too few variables, relied on statistical associations or made unrealistic or inconsistent assumptions.”

The Global Renewable Fuels Alliance (GRFA) welcomed the report’s findings. “This food crisis event in 2008 allowed critics of ethanol to make an easy scapegoat of the industry during a period of unprecedented expansion in ethanol production,” said GRFA spokesperson Bliss Baker. “This is a lesson for us all about the dangerous impact of rising oil prices and the willingness to look to an easy answer, not necessarily the right answer.”

The report found that speculators responding to rapidly declining global wheat stocks caused by ongoing drought originally triggered the crisis, which was exacerbated by countries imposing export restrictions on grains that drove prices even higher. The simultaneous spike in crude oil prices to record levels put upward price pressure on all commodities making the food crisis a truly global event. “The primary impact of high oil prices on agricultural commodities seems still to be through the supply-side, via increased costs of production, rather than the emerging demand-side channel of biofuels,” the report noted. “Fuel and fertiliser account for over half of operating costs of crop farms but many commentators have ignored oil’s ongoing importance as an input into agricultural production.”

Going forward, the report is very optimistic about the world’s ability to respond to both demand for biofuels and the need for additional cropland citing vast amounts of under utilized agricultural reserves around the world.

Read the full report here.

The American Coalition for Ethanol (ACE) is calling claims made by an advertising campaign against ethanol by a coalition food and oil company groups “half-baked.”

“If the products sold to consumers by Big Food are as half-baked as their ethanol claims, we have a life-threatening food safety crisis in America,” stated Brian Jennings, Executive Vice President of ACE. “Never before has more corn been used to make more ethanol, and yet retail food prices have fallen sharply this year.”

Jennings issued the statement in response to an anti-ethanol ad last week in the Capitol Hill publication Roll Call, that was funded by the American Meat Institute, Grocery Manufacturers Association, National Petrochemical and Refiners Association, Environmental Working Group and others. The ad claimed that moving from 10 percent ethanol in gasoline up to E15 would be bad for consumers, the environment, and rural communities.

“This coalition of strange bedfellows is both desperate and naïve,” Jennings said. “Oil and food companies are desperate and will resort to anything to protect the status quo of cheap corn and expensive oil. Some environmental groups naively believe getting rid of corn ethanol today, in hopes that some other potentially promising but not yet commercialized technology will be available tomorrow, will somehow reduce air pollution.”

EPA is currently considering a petition that would increase the amount of ethanol allowed in regular gasoline to 15 percent from the current 10 percent.

After becoming one of the top three wheat exporters in 2008, Russia is now determined to play a pivotal role in the flow of worldwide agriculture markets. Russian Federation’s President Dmitry Medvedev has proposed closer coordination between global grain exporters and said, “excessive protectionism had encouraged speculation in global grain markets,” during the World Grain Forum which took place over the weekend in Saint-Petersburg. This challenge was spurred in part by the number of people globally  who are stricken with extreme starvation: 1 billion.

Russia is also the second largest oil supplier and intends to get into the biofuels game. However, Medvedev said to the more than 1,000 forum attendees that the country would only support sustainable fuels developed from non-food sources.

“The technology now exists and we think the world community has to find a compromise between the issues of energy and food security,” Medvedev said in Rueters’ article Kremlin urges grain exporters to tackle world hunger. “The growth of biofuels should not become a reason for a growing deficit of food grain.” The country plans on more than doubling its agriculture land and production over the next few years.

Syngenta Chief Operating Office Crop Protection, John Atkin was also a speaker during the World Grain Forum and during his presentation emphasized the critical role of technology in meeting current and future global food needs.

“The world must work together, Atkin said, “to accelerate technology adoption. We could already realize significant yield
potential within the next three years by comprehensively deploying existing technologies.”

The American Farm Bureau Federation, Growth Energy, National Farmers Union, and National Corn Growers Association joined together today to host a media call to applaud the recently released report from the Congressional Budget Office, “The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions.” The report concluded that from April 2007-April 2008 ethanol did have a slight impact on rising food prices but that other culprits, such as high energy prices, had the most impact on rising food costs. Of the 5.1 percent increase in food prices, expanded ethanol production contributed between 0.5 and 0.8 percent of the increase in food prices measured by the consumer price index.

Bob Stallman, President of the American Farm Bureau Federation, began by saying, “The results come as no surprise to us. We have called for hearings to determine why food prices have increased. It’s disingenuous to only look at corn when determining why food prices are increasing. We think they owe us an apology.”

Tom Buis, CEO of Growth Energy expanded on the factors that did have the most impact on rising food prices including the weak dollar, increased exports, unregulated energy markets, and oil speculation.  Roger Johnson, President of the National Farmers Union noted that studies have shown that during the same time food prices and gas prices were on the rise, ethanol saved consumers an average of 34 cents per gallon. This equates to nearly $500 per year for the average family.

The ethanol industry has recently filed a “Green Jobs Waiver” or “E15 Waiver” with the EPA to increase the blend level from 10 percent to 15 percent. It has been argued by ethanol proponents that unless the blend wall is increased the industry won’t be able to achieve the goals set out in the Renewable Fuels Standard (RFS) calling for 36 billion gallons of biofuels blended per year by 2022. “We won’t get there unless we make the ethanol industry profitable again and get through the higher blend wall,” summed up Rick Tolman, CEO of the National Corn Growers Association. “We will provide what we need to get to the next generation of biofuels.”