Con: Worldwide demand for all grain crops is biggest factor driving food prices
The popular misconception that increased use of corn for ethanol production is the only factor driving higher food prices is just thatóa misconception.
Ethanol production has, and will continue, to add to corn demand, but other factors also are playing major roles in higher food prices.
Global demand for U.S. agricultural products has increased significantly the last several years. China and India are just two examples where growing affluence is leading to changes in diet and overall food demand. Helping add to export demand is the devaluation of the dollar. This makes corn, soybeans, wheat and other commodities produced in the United States particularly attractive to overseas buyers.
Even though corn prices for the current marketing year are up $1 per bushel from last, corn exports are projected to increase 200 million bushels. Rising exports in the face of rising prices is an indicator of very strong demand. This is not limited to corn. It can be seen in dairy and other commodities. Domestic demand, beyond ethanol, is also strong, with corn used for livestock feed running at the same pace as last year.
Above the farmer in the food chain are processors, distribution systems and grocery stores. We are all familiar with how energy prices are affecting the retail costs of goods. Food products are no different. And because of the refrigerated nature of much of the food system, those delivery costs can be even higher. Labor costs are also a factor, as is the fact that, as consumers, we are constantly demanding more convenience in our food products. Finally, food suppliers are raising food prices simply because they can.
And yes, there is ethanol.
Agriculture has been asked to help provide some of the nationís energy supply, but to supply it in a way that conforms to existing infrastructure. From the pumps to the engines, from the tanks in the ground to the carburetors in old vehicles, the energy supply agriculture has been asked to provide comes with a lot of constraints.
Ethanol helps provide that answer. It will not replace gasoline, nor will it, by itself, make the U.S. energy independent. It will take a great deal of effort and research to make large-scale cellulosic ethanol production feasible in a way that allows us to substantially reduce our oil import needs.
But corn-based ethanol already is providing half a million gallons of motor fuel a day and will approach a million barrels a day when the renewable fuels standard for corn-based ethanol is fully implemented. Francisco Blanch of Merrill Lynch has been reported in The Wall Street Journal as saying biofuels are lowering the price of oil and gasoline by 15 percent.
Contrary to some press reports, numerous studies clearly demonstrate that corn-derived ethanol has a positive energy balanceóthat we get more energy out of the product than we put into the entire process, going all the way back to the energy used to build the tractors and combines.
So, while U.S. agriculture is going through an adjustment phase, as would any sector of the economy trying to handle the number of hurdles that have been tossed our way, I encourage you to look at all of the contributors playing a role in rising food costs.
Making ethanol the scapegoat oversimplifies the issue, and it derails a product that is good for our economy, our environment and helps to lessen our demand for foreign oil.
Bob Stallman, a rice and cattle producer from Columbus, Texas, is president of the American Farm Bureau Federation (www.fb.org). Readers may write to him at AFBF, 600 Maryland Ave. SW, Suite 1000W, Washington D.C. 20024.