AFBF: Corn prices have small impact on higher food costs

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The “food versus fuel” issue is one of rhetoric, not reality, according to an American Farm Bureau Federation economic report released this week. Corn demand to make ethanol has little to do with the recent rise in food prices, said the organization, instead weather and high energy costs are more to blame.

AFBF said that nearly all of the evidence points to factors other than ethanol demand, including an early freeze that zapped fruits and vegetables, low world supplies of wheat, milk producers’ cutting back on production in response to last year’s low prices and the rising cost of energy.

“There is little evidence that any food category has been affected by higher corn prices in any significant manner,” said AFBF economist Terry Francl.

According to Francl, the value of corn usually is just a tiny fraction of a product’s price. For example, the value of corn that goes into a box of corn flakes has been estimated to be 2.2 cents.

“Even if the cost of the corn doubled, it is hard to understand how this relates to an increase of 10 to 20 times that much in the price of a box of cereal,” he said.

Food and beverage prices rose about 4 percent in May 2007, compared to a year ago, according the Labor Department’s latest Consumer Price Index (CPI). Meanwhile, production of ethanol, mostly from grain corn, has more than doubled since 2002. Tax incentives and a government mandate that increasing amounts of the nation’s fuel supply come from renewable fuels also are driving ethanol production even higher. As a result, the price of a bushel of corn has nearly doubled to $4 since late 2005.

“Ethanol is unfairly getting a bad rap,” Francl said, “because people aren’t looking at all the other factors that are involved in food prices.

In addition, the most recent crop production report indicates a robust corn crop for this year, which should further ease any remaining concerns about higher ethanol production.

To read the report by AFBF economist Terry Francl, (pdf format) go to: http://www.fb.org/newsroom/nr/nr2007/07-09-07/Fuels%20versus%20Food%20or%20Rhetoric%20versus%20Reality.pdf

American Farm Bureau Federation

 



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