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Find Out What Really Drives Food Prices (It Ain’t Ethanol)

| Wednesday August 27th, 2008 | 6 Comments

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.


▼▼▼      6 Comments     ▼▼▼

Categorized: Agriculture & Food|

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  • http://www.lionsledbysheep.com Steve N. Lee

    A very informative post. And thanks for the link to FoodPriceTruth which I’ll certainly be checking out.
    It amazes me how people fall for mass manipulation time and again – something I’ve pointed out on my blog umpteen times. Some people get it, but, sadly, many are in denial and think I’m talking garbage!
    I hope when you spell out the facts so clearly people might take notice and start believing the truth. Though, I guess they may just as easily think FoodPriceTruth is some communist organization out to confuse the American people and lead them into an economic wilderness so Russia can finally overpower the world! :-0 Or maybe not.
    Thanks for the myth-busting!
    Steve N. Lee
    author of eco-blog http://www.lionsledbysheep.com
    and suspense thriller ‘What if…?’

  • Auntie Pearl

    Agree with the previous comment…Thx for this. It’s struck me as unlikely that corn ethanol was as large a factor in food price rises as was being claimed…Good to know there’s a source of good, accurate info out there…

  • Ray Taub

    First of all, I hate websites with names like “FoodPriceTruth” .. it’s arrogant and sounds reactionary. Hilariously, if you type .com instead of .org, it redirects to an anti-ethanol group.
    I definitely agree that high food prices are caused by OIL PRICES and not ethanol, however there is some truth to the idea that ethanol driven corn prices caused the price of tortillas to rise in Mexico.
    Ethanol is not without many, many problems so please do some homework before making blanked praise posts like this, you come across as ignorant and a shill.

  • http://amplifiedgreen.wetpaint.com/ angelique van engelen

    Thanks for those comments. Normally I would not re-hash the info off of a site but this was too useful despite the cheezy name.
    Ray, I agree that Ethanol has many many problems not least its environmental impact, but one thing it can´t be blamed for is rising food prices.
    What makes you believe it has an influence on the price of tortillas in Mexico?

  • R. Taub

    Some links on the tortilla deal:
    Wash Post
    Boing Boing – which is more skeptical
    I’m not raging against Ethanol, only saying it’s not as great as some cheesy lobbyist website says it is.

  • Gary Chrismon

    MY my, bio fuels use 4% of the world’s grain supply and this reduces gasoline and diesel costs by 16-25%. Pretty powerful stuff. This makes me worry about how much money is REALLY coming out of taxpayer pockets in the form of biofuel subsidies.
    Your argument is so full of holes, I don’t know where to start so I’ll just attack one statement. It makes no difference what kind of corn is used for ethanol production. If feed corn goes up, then food corn goes up. If you are a farmer that produces food corn and say you are getting $4/bushel and your neighbor is producing yellow dent corn and it is bringing $7.50/ bushel, you are a really dumb farmer if you don’t switch to yellow dent, thereby creating a shortage of food corn. Secondly when one type of grain goes up dramatically, with it comes all other grains as well as all grain byproducts. Animal feeds have gone up well over 100% in the last year, causing the price of beef, pork and chicken to skyrocket. Fertilizer prices tripled last year to the point that if you were not a grain farmer, you couldn’t afford it. This means that if you are a cow calf operator in the U.S. you cannot afford to fertilize. This results in less grazing, less hay, a forced reduction in herd size and increased cost of beef cost to the consumer.

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