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Print articleNew research (The Relative Impact of Corn and Energy Prices in the Grocery Aisle), conducted recently by economist John Urbanchuk of LECG (a research and analysis company) found that rising energy prices have twice the impact on the Consumer Price Index (CPI) for food than does the price of corn.
The study found that ?a 33 percent increase in crude oil prices results in a 0.6 percent to 0.9 percent increase in the CPI for food, while an equivalent increase in corn prices would cause the CPI for food to increase only 0.3 percent.?
Brian Jennings, ACE Executive Vice President, said:
?Critics of ethanol are stirring controversy where none exists, because higher food prices have more to do with $3.50 per gallon fuel than with $3.50 per bushel corn. While corn prices might add $10 per year to a person's grocery bill, skyrocketing gasoline prices are taking an additional $10 a week out of peoples' pocketbooks.?
While corn is an ingredient in only some grocery items ? mainly livestock, dairy, and poultry ? all grocery items are dependent upon energy for production, processing, packaging, and shipping. These non-farm costs make up the majority of the cost of food; according to the USDA, 81 cents of every food-cost dollar pays for expenses such as labour, packaging, advertising, transportation, and energy costs.
Jennings said:
?If corn prices due to ethanol demand do indeed add a couple of cents per day to Americans' food bills, this is a great value for creating thousands of new American jobs, breathing cleaner air, saving billions in farm programme costs, and lessening our dependence upon expensive imported oil and gasoline.?
Since January of this year, the retail price of gasoline has gone up by more than a dollar. These record or near-record gas prices cost Americans an additional $500 a year just to fuel up their vehicles, not to mention the increased prices paid for all manner of consumer goods dependent upon transportation.
?Record high oil and gasoline costs are cutting deeply into American consumers, and the only way to shake off the heavy burden of fuel costs is to find alternatives,? Jennings said. ?Ethanol is the most real, meaningful alternative fuel available today ? a true bright spot in an otherwise bleak energy supply picture. Ethanol is part of the solution, and the farmers and entrepreneurs of the US ethanol industry are taking action to help America get its energy situation in order.?
The US ethanol industry's brisk rate of growth has contributed to corn prices climbing from below two dollar levels. US corn producers are responding to these market signals and to the higher demand for corn, reporting in this spring's USDA Prospective Plantings Report their intention to plant 15 percent more acres to corn than last year, the highest level since 1944.
?Farmers base planting decisions upon market signals, and these 92 million acres planted to corn show that the supply and demand of the marketplace is functioning as intended. There will be an ample supply of corn this year to meet all important needs ? food, feed, and fuel,? Jennings said. ?Despite a clearly coordinated public relations attack by special interest groups trying to pin food price increases on the ethanol industry, the evidence doesn't support the accusations.?
The report suggests that the rise in corn price, rather than being negative, is a positive: ?The good news is that prices may be more stable as corn production expands to meet ethanol requirements and new ethanol feedstocks and technologies emerge.?
Not everyone would suggest that expansion of corn production for ethanol production is good, indeed the price of corn is not the only concern that environmental groups such as Greenpeace have with expanded corn production. In their ?Tell the Government to choose the right biofuel. Or the orang-utan gets it.? the Greenpeace (and others) say that expanded farming for fuel jeopardises the earth's rainforests and endangered species as they make way for crops. When forests are cut down to make way for crops, not only is the capacity to reduce carbon dioxide reduced, but carbon dioxide levels actually rise as the wood is usually burnt releasing the captured carbon dioxide into the atmosphere.
Additionally, there are questions about even being able to meet the demand necessary.
Roger Kemp, professor of engineering at Lancaster University, said:
?We would need to plant a land area twice the size of Britain to get enough biofuel crops to halve our emissions. The numbers simply do not add up.?
