What’s Driving Food Prices? (not only ethanol)

Ag Economists Analyze High Commodity And Food Prices

In case you haven’t heard, food prices are going up. Go ahead… protest, panic, point fingers. It’s that evil ethanol industry that’s doing this afterall, how dare they use corn to make fuel, taking away from the supply and making the grocery bill go up.

Recent studies of Purdue University ag economists show that in fact the food prices are drven by a combination of factors… not only ethanol. High oil prices, the weak dollar, world production and consumption trends all add a little ‘push’ to the price. But that’s a side of the story less often mentioned.

The following is a excerpt from the press release from Purdue University about the findings:

— In a Farm Foundation commissioned report, the Purdue economists – Phil Abbott, Chris Hurt and Wally Tyner – highlight key factors gleaned from examining 25 recent studies plus their own analysis. Their conclusion: a complex combination of factors is fueling agricultural commodity price increases and rising food costs.

 Tyner, an expert on energy and policy issues, said the price of oil is an important factor that has increased the demand for biofuels. “About $3 of the corn price increase is due to the higher oil price and $1 to the ethanol subsidy,” he said.

 As high oil prices spur demand for biofuels, the increased corn production stimulates demand for fertilizer, diesel, propane and other agricultural inputs. Prices for these inputs have also risen due to the “demand pull” from more corn being produced and subsequently the “cost push” due to the fact that petroleum products are key ingredients in many of these inputs.

Biofuel Battle

The hot button issue of biofules continue to make headlines across the nation as power players from all industries begin the finger-pointing, fact throwing game. The following is a fact sheet release by the USDA in a joint effort with the DOE.

 

	Fact Sheet Gas Prices and Oil Consumption Would Increase Without Biofuels
	June 11, 2008
	Secretary of Energy Samuel W. Bodman and Secretary of Agriculture Edward T. Schafer sent a letter on June 11, 2008 to Senator Jeff Bingaman addressing a number of questions related to biofuels, food, and gasoline and diesel prices. The letter is available at http://www.energy.gov Without Biofuels, Gas Prices Would Increase $.20 to $.35 per Gallon. The U.S. Department of Energy (DOE) estimates that gasoline prices would be between 20 cents to 35 cents per gallon higher without ethanol1, a first-generation biofuel. For a typical household, that means saving about $150 to $300 per year. For the U.S. overall, this saves gas expenditures of $28 billion to $49 billion based on annual gasoline consumption of roughly 140 billion gallons. Ethanol use has exceeded the requirements of the Renewable Fuel Standard (RFS), established in the Energy Policy Act of 2005, demonstrating that refiners and gasoline marketers have an economic advantage to use more ethanol than is required by law. Biofuels are Reducing America’s Dependence on Oil. Without biofuels, DOE estimates that the United States would have to use 7.2 billion more gallons of gasoline in 2008 in order to maintain current levels of travel (a 5 percent increase). This increased demand for gasoline would drive up the price Americans pay at the pump due to basic supply and demand. Biofuels are Reducing Greenhouse Gas Emissions. DOE scientists found that corn ethanol from the U.S. reduced greenhouse gas emission 19 percent compared with gasoline, when the full “life cycle” of the fuel is considered – from growing it to producing the fuel and burning it. DOE scientists estimate that 13 million tons of greenhouse gases were avoided in 2007 due to biofuels production and use. The next generation of biofuels—cellulosic—made from switchgrass, corn stover, wood chips and other non-food sources promises even more significant reductions in greenhouse gas emissions than corn-based ethanol – reductions of more than 86 percent compared with gasoline. [1] This estimate relies on data on the current price difference between ethanol and gasoline and the elasticity of supply for petroleum. Consequently, a range is presented. Today’s Biofuels Account for Only a Small Percentage of the Increase in Global Food Prices. Other factors are responsible for the majority of the increase in global food prices: Higher oil and gas prices leading to increased costs of fertilizer, harvest, and transportation; Increased demand as developing countries grow and people improve their diets; Two years of bad weather and drought leading to poor harvests in parts of the world; Export restrictions imposed by some countries. Future Biofuels Will Alleviate Much of the Concern about Competition Between Food and Fuel. Cellulosic biofuel feedstocks can be produced on land not suitable for crops or it can be collected from forest residues. The Administration has announced more than $1 billion for the research, development, and demonstration of new biofuels technology, with a special focus on cellulosic biofuels. Funding supports: Bioenergy Research Centers where scientists work together to make the conversion of plant fiber to fuel more cost-effective and efficient.

Why agricultural communications?

Since I was a senior in high school I knew exactly what field I wanted my future career to be in. However, I often found that when I shared my plans with others I was faced with a blank stare followed by the typical question — So what is agricultural communications?

It seems somewhat self-explanatory to me, but I will upon request provide a complete definition of what it entails.

This article by TIME titled The Clean Energy Scam is an example of why it really is necessary to have agricultural communicators integrated into the mass media market.

The article presents the idea that corn ethanol is not only causing higher food prices, but progressing the deforestation of the Amazon rain forest as well. The writer uses inaccurate information and fails to cover all sides of the issue.

The National Corn Growers Association addressed the article with a response. However,TIME readers will most likely remain unaware of the true facts.