Many people believe that high food prices are a result of the biofuel industry’s demand for food crops like corn. This is not the case. Food prices have risen by 4.5% in the US this year, mainly due to one reason; the high oil price. Global food prices have risen over 40% and again the main reason is the high oil price. Ethanol has got preciously little to do with this.
For myth-busting information about how food, ethanol and oil interrelate, you should check out an organization called FoodPriceTruth.org. Originally created to inform the American public about a smear campaign against ethanol by the food industry, the organization has publishes an interesting collection of facts and figures giving you a quick overview of the major issues in an instant.
FoodPriceTruth dismantles commonly believed myths about food prices, biofuel, oil and world poverty in split seconds.
Here’s some key facts listed on FoodPriceTruth.org;
- U.S. food prices have increased about 4.5% this year.
- World food prices have increased over 40% this year (numbers based on USDA and the White House Council of Economic Advisors data)
- Corn demand is only responsible for 3 percent of the 40% increase in the world food price rises.
- When Crude oil went from $40 to $120, corn went from $2 a bushel to $6 a bushel, a tripling of both prices. BUT about $1 of the corn price increase was due to the influence of the ethanol market and $3 to the higher crude price.
- U.S. corn ethanol production has indeed increased the demand and price for corn. But it is misleading to suggest that this price dynamic is a driver of food price rises.
- The price of groceries is traditionally insensitive to corn price hikes.
- Biofuels only consume roughly 4% of the world’s various grains.
- Ethanol is made from “dent” or yellow “feed” corn. People accuse ethanol of increasing the price of beer, pasta and tortillas, which is curious because none of those products are made from “dent” corn.
The consensus opinion of economists is that factors behind the food price rises in the US include;
- record oil prices,
- the declining value of the U.S. dollar,
- increased demand for grain from developing economies around the world,
- rampant speculation on the commodities market,
- weather related production shortages worldwide (especially wheat), and food company profiteering.
When trying to figure out how the factors interact, keep in mind that higher oil prices affect much more than just your own car. Higher oil prices affect the cost of industry at large. Manufacturers pass on the extra transport costs to end consumers.
Also bear in mind that food items tend to be largely unrelated to ethanol or corn prices but to fundamental supply and demand relationships. These in turn are largely related to oil.
Various official data recently released underscore this fact. As a matter of fact, ethanol actually keeps food prices down say analysts at Merrill Lynch who have calculated that biofuels have reduced gasoline and diesel prices by 16-25%.
This was also the main reason why the Environmental Protection Agency (EPA) decided two weeks ago to deny the State of Texas request to reduce the amount of ethanol on the market.