Ethanol = Food AND Fuel

The food and fuel debate to date has been too simplistic, focusing on biofuels, rather than recognizing the significant impacts of fast rising petroleum prices, increasing Asian demand for protein and grains, and weather-related events like Australian and European droughts. All commodity prices are on the rise—biofuels are a bit player.

Essential Facts:

  1. Ethanol producers are food producers
  2. Corn price has marginal impact on food price – petroleum much more significant
  3. There is an upside to rising commodity prices for farmers around the world

1) Ethanol producers are food producers

The corn kernel is composed of starch, fiber, oil and protein. The highest value for feed is the protein. Ethanol production, on the other hand, converts the starch into fuel and in the process concentrates 100 percent of the fiber and protein into a higher value feed product called distiller's grain. Ethanol producers sell the high-protein distiller's grains as livestock feed.

As a result, there is no diversion of the most important food component of corn (protein). Rather, it is processed and sold back into the market as a value-added feed product.

2) Corn price has marginal impact on food price – petroleum is much more significant

A study by researchers at Texas A&M University concluded the underlying force driving price changes in the agricultural industry, along with the economy as a whole, is overall higher energy costs, evidenced by $100 per barrel of oil and not the price of corn or ethanol's effect on the corn prices. The study noted that eliminating the Renewable Fuels Standard would not result in significantly lower corn prices.

Price increases for food have less to do with ethanol or biodiesel production than they do with the increases in petroleum price. 

There is less than a nickel's worth of corn in a box of Cornflakes, and less than two cents worth of corn syrup in a can of soda.

80 percent of the average retail price of food is added after it leaves the farm.

dollar sectionIncreased food costs are influenced by overall feed commodity prices, not only corn. Over the last several years, most all feed commodity prices have generally increased. Loek Boonekamp, with the Agro-Food Trade and Markets Division of the Organisation for Economic Cooperation and Development (OECD), said in January 2008 that the surge in farm product prices would have happened without the increase in biofuel production.

The rise in corn price has reduced farmers' dependence on federal farm programs, saving taxpayers $8 billion in farm payments.

3) There is an upside to rising commodity prices for farmers around the world.

World food experts agree that a major key to improving world hunger is expanding local production around the world. According to the Institute for Agriculture & Trade Policy, "Higher commodity prices do not necessarily translate into higher food prices in developing countries. In fact, higher commodity prices could actually increase food security in developing countries by reducing agricultural dumping."

A 2008 Wall Street Journal story about agricultural revival in sub-Saharan Africa states: "The rural boom has been brought about by rising global prices for farm products and low labor and land costs. Exports of vegetables, fruits and flowers, largely from eastern and southern Africa, exceed $2 billion a year, up from virtually zero 25 years ago."

Surge in Food Production Aids Millions, WSJ, January 9, 2008

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