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.

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.

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.

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.”

“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.

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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

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

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 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.

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.

“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.

“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.

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.”

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.”

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.

Heavy demand for corn from ethanol makers was seen as a key driver of corn futures to record highs in June, but since then the sharp decline of corn along with other commodities shows that belief was mistaken. Corn is down about 50 percent from its record high in June, even as the amount of the grain used to produce the renewable fuel in the United States remained the same.

The article quotes Stewart Ramsey, senior economist for Global Insight, a Philadelphia-based company that provides economic, financial, and political analysis and forecasting. “The record high prices were a speculative bubble,” Ramsey says in the article.

Analysts said soaring corn prices were a symptom of big shifts of investment money into corn and other commodities. As big money began shifting out of stocks a few years ago, commodity markets like corn futures began climbing. “There was a speculative bubble in the market and that’s one of the bigget things that came out of the market is just that equity markets weren’t good and for a while the money came into commodities,” Ramsay said.

“A number of factors have led to the recent historic increase in commodity prices, but market forces are kicking in—creating stability, and profit opportunities for livestock producers, biofuels producers and the rural communities in which they live and do business,” noted Jenkins in the paper. “The advent of the biofuel industry is helping lead America out of decades of stagnant commodity prices—while, for the first time, providing consumers with a viable fuel choice for their vehicles.”

Ethanol Across America is a non-profit, non-partisan education campaign of the Clean Fuels Foundation and is sponsored by industry, government, and private interests. U.S. Senators Ben Nelson (D-NE) and Richard Lugar (R-IN), Co-Chairmen.

The forum will provide an opportunity for Nebraska policymakers and consumers to better understand how ethanol policy plays a role in economic development, energy security, agriculture and the environment.

The Nebraska Ethanol Board is inviting presentations from a diverse group of people, including corn growers, restaurant owners and livestock feeders. Confirmed presenters include Dr. Ken Cassman of the University of Nebraska-Lincoln, Dr. Terry Klopfenstein of UN-L, Michael Kelsey of the Nebraska Cattlemen, Jon Holzfaster of the Nebraska Corn Board, and Jim Jenkins, rancher, restaurateur and chairman of the Nebraska Ethanol Board.

The forum is scheduled for Friday, October 24 at 9 a.m. at the Scott Conference Center in Omaha.

Karol Aure-Flynn, executive director of the Rabobank Food & Agribusiness Research and Advisory department, says “food versus fuel” is basically a misleading sound bite. “The fallacy of the headline is that there is a direct competition between the two; that it’s either or. The reality is that strong global economic growth has changed the demand equation for U.S. commodities,” he said in a recent Rabobank podcast. “The depreciation of the U.S. dollar, soaring energy costs and changing trade policies are also contributing to the cost of commodities, which in turn is raising the cost of food — it’s not just fuel, it’s a combination of all of these factors.”

Aure-Flynn also notes that while prices at the farm level have increased this year, they have been outpaced by production costs for farmers.

“Farmers’ profitability doesn’t change retail prices. And farmers’ profitability isn’t guaranteed by high grain prices. The same factors that are lifting grain prices are lifting production costs,” said Aure-Flynn. “So, yes, the farm price index is at 162 percent of what it was 1990-1992, but at the same time the price index measuring what farmers pay — for services, farm wages — is 189 percent of base.”

Rabobank is a global financial services leader providing institutional and retail banking and agricultural finance solutions in key markets around the world.

According to EPA, “implementation of the RFS would have no significant impact in the relevant time frame (the 2008/2009 corn season), and the most likely result is that a waiver would have no impact on ethanol production volumes in the relevant time frame, and therefore no impact on corn, food, or fuel prices.”

EPA also determined that the evidence also indicates that even if the RFS mandate were to have an impact on the economy during the 2008/2009 corn marketing year, it would not be of a nature or magnitude that could be characterized as severe. Even in the modeled scenarios where a waiver of the RFS mandate might reduce the production of ethanol, the resulting decrease in corn prices is anticipated to be small (on average $0.30 per bushel of corn), and there would be an accompanying small increase in the price of fuel (on average $0.01 per gallon in fuel costs). The average increase in corn prices in all modeled scenarios, including scenarios where the RFS mandate would and would not have an impact, was $0.07 per bushel of corn. Such levels of potential impacts from the RFS program do not satisfy the high threshold of harm to the economy to be considered severe.

Read EPA’s decision justification here.

Wally Tyner is one of the professors who was a part of the three-man team that conducted the study. The agricultural economics guru says his team found three major driving factors in high food prices:

“The first is global trends in production and consumption of agricultural commodities. The second is has to do with sort of macro economic factors, the depreciation of the dollar. And the third has to do with biofuels. And these are linked in some ways but in some ways its like a perfect storm of all these things coming together at the same time that has led to the huge run-up in prices.”

In this DomesticFuel Cast, we hear from Neal Conklin, President of Farm Foundation and Wally Tyner, Professor of Agricultural Economics at Purdue University. Here is the Domestic Fuel Cast #7:
df-podcast-07.mp3

You can also subscribe to the DomesticFuel Cast using the following url/feed link: http://www.zimmcomm.biz/domesticfuel/domestic-fuel-cast.xml.

Economist Wally Tyner says between 2004 and the beginning of 2008, oil went from $40 per barrel to $120 per barrel at the same time corn prices increased from $2.00 a bushel to $6.00. “Of that $4 increase, about $1 is due to the US subsidy and about $3 is due to the higher crude oil price,” Tyner told a Farm Foundation forum on the study earlier this week. “So even if all the subsidies go away tomorrow, corn prices would still be high, unless we chose to ban use of corn for ethanol.”

University of Nebraska policy specialist Brad Lubben, who gave his analysis of the study at the forum in terms of public policy, said this is an important point to consider when attempting to change the Renewable Fuels Standard in an effort to lower food prices because it is the “easiest” to manipulate. “It’s an important consequence to realize that the easiest policy to attack may have relatively little significance and little impact on the current supply and demand balance for these ag commodities and for energy,” Lubben said.

Lubben pointed out that while it may seem that changing the RFS is easy, EPA has already had to postpone its decision on the request for a partial waiver of the RFS because of the challenges they are having in analyzing all the comments and data they have on the issue.

This edition of “The Ethanol Report” features comments from the Farm Foundation forum and report on “What’s Driving Food Prices?” Featured are Farm Foundation President Neil Conklin, Purdue University economist Wally Tyner, and University of Nebraska public policy analyst Brad Lubben.

You can subscribe to the twice-monthly “The Ethanol Report” by following this link.

Or you can listen to it on-line here: ethanol-report-17.mp3

The Alliance for Abundant Food and Energy includes Archer Daniels Midland, DuPont, John Deere, Monsanto, and the Renewable Fuels Association.

The alliance asserts that “By growing more crops and developing more efficient ways of processing them, we can produce enough food to meet the world’s needs. The Alliance for Abundant Food and Energy understands that innovations in Agriculture can support the development of greater productivity, enabling farmers to effectively supply both the world’s growing food and energy demands.”

The companies involved have contributed towards a fund that will be used for national advertising and lobbying efforts on Capitol Hill.

The Farm Foundation study “What’s Driving Food Prices?” was written by three Purdue University economists. Lead author Wally Tyner says that while ethanol demand is definitely the main reason for increased corn prices, the ultimate driver behind ethanol demand is higher oil prices.

“Crude oil’s strongest and most direct impact on food prices has been through its effect on the demand for biofuels,” Tyner said. “Higher oil price means higher gasoline price, higher gasoline price means more demand for ethanol because ethanol is a substitute for gasoline, and the higher ethanol demand means more demand for corn and more demand for corn means higher corn prices.”

The result has been that the price of crude oil and the price of corn are now linked, Tyner says, which is a revolution for global agriculture.

Farm Foundation president Neil Conklin says what the study shows is that today’s food price levels are the result of complex interactions among multiple factors, including global changes in production and consumption of key commodities, the depreciation of the U.S. dollar, and growth in the production of biofuels.

Farm Foundation is an independent group with a 75 year history that does no lobbying and has no allegiance to any particular agricultural commodity. Farm Foundation will host a free webinar on the report, July 30 at 1 p.m. EDT.

Read the full report here.

According to a review of the report by the Renewable Fuels Association, the “OECD data does not support the conclusions of the report or a call by OECD officials for a moratorium on biofuels.”

For instance, OECD credits ethanol produced from corn starch with a 30% reduction in greenhouse gas
(GHG) emissions if using natural gas, and a 50% reduction in GHG if the facility is powered by biomass.
Based on this finding, a moratorium is not warranted.

In addition, the modeling included in the report suggests that a 28% drop in world oil prices would cause a 12% reduction in world coarse grain prices ($0.75 per bushel in the case of corn today), underscoring the fact that skyrocketing oil prices are the largest driver behind increasing grain prices. By contrast, removing biofuel mandates like the Renewable Fuels Standard (RFS) would reduce coarse grain prices by just 1% ($0.06 per bushel of corn). Even abandoning all biofuels policies would only yield an average coarse grain price reduction of 7% ($0.45 per bushel).

Read the RFA review here.

Michael says that gas price volatility can be avoided with fuel diversification by blending renewable fuels with fossil fuels. That’s what his research shows. He also suggests that we could relax gas taxes and reduce the tariff on the importation of Brazilian ethanol.

Another part of his research is on food and fuel and to answer the question of “Is there a direct link between the volatility of ethanol production and the volatility of corn prices. His research has found that there is a link but not a persistent or long lasting one. In fact, in the long run he says there is no direct link.

The bottom line he says is to produce more food.

You can listen to my interview with Michael here: ff-bio-08-wetzstein.mp3

You can also download the interview using this link (mp3).

I’m also uploading pictures to a photo album which you can feel free to use if you’d like: Transition To A Bio Economy Photo Album

The final declaration adopted by 180 countries calls for further study on the issue, an approach which world biofuels producers called “thoughtful.”

In a statement, leaders from the Canadian Renewable Fuels Association (CRFA), the European Bioethanol Fuel Association (eBio), and the Renewable Fuels Association said they the proposal to undertake further study of biofuels in agriculture. “We are confident it will underscore the valuable contribution biofuels can make to ease the energy and agriculture challenges confronting all nations,” they said.

Agriculture Secretary Ed Schafer also welcomed the declaration’s recognition of the important issues related to the challenges and opportunities of biofuels. “The United States is firmly committed to the sustainable production and use of biofuels, both domestically and globally,” he said in a statement.

During a press conference with reporters from Rome, Schafer said that during his time there, he has “become more confident that our ethanol policy of energy security, of better environmental factors, and a reduction in the cost of petroleum use in our country is the right policy direction. And I certainly am going to urge continuing along the way we’re going.”

The real focus of the summit was on getting countries to come up with more money to meet urgent humanitarian needs for food and to help countries achieve continuing food security through investment in agriculture and research. Schafer said the United States will continue to provide the majority of food aid globally, projecting to spend nearly $5 billion on programs to combat hunger over the next two years. By contrast, oil-rich countries like Venezuela and Kuwait have only pledged to spend $100 million a year.

“Instead of using ethanol as a scapegoat for increased food prices, we should be having a discussion about the business, economic and policy issues that are connected with the world of $130 plus per barrel oil,” said American Farm Bureau Federation president Bob Stallman. He said the country’s Renewable Fuels Standard passed by Congress in December was the “right thing to do and continues to be the right thing to do.”

Stallman was joined by Tom Buis of the National Farmers Union, in a rare show of unity for the two general farm organizations that are frequently at odds over policy issues. Buis listed his top six myths about higher prices being blamed on ethanol, including Mexican tortillas, pasta, rice, bagels, beer and movie theater tickets. “I’m tired of debating these myths,” said Buis. “The last thing we need to do on renewable energy is backslide again because 30 years from now we will be back talking again about our dependence on imported energy.”

Other farmer leaders from the National Corn Growers Association, National Association of Wheat Growers, and the National Sorghum Producers participated in the conference call with members of the news media, fielding questions from reporters at media outlets ranging from Reuters to the Capitol Press in Idaho.