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Corn not the cause of food price increase
It is becoming more popular all the time to pin food price increases on higher corn prices. Hardly a day passes without reading or hearing media reports blaming corn prices and ethanol for higher food prices.
Expansion of the ethanol industry to meet clean air standards and to reduce dependence on imported oil has certainly boosted demand for corn, which is the primary feedstock for U.S. ethanol. It is true that this increased demand has caused corn prices to rise to levels not seen since 1995.
However, media reports often quote misleading numbers indicating that corn prices are in the neighborhood of $4 a bushel. In reality, corn prices are only around $3.15 at local elevators, and they are expected to be around that level for the 2007 crop. ?What is even more frustrating in news reports is the constant references that higher corn prices caused by ethanol demand directly result in food prices going up. If reporters would take time to dig into the numbers and the facts, they would find that other factors are the real cause of higher food prices.?Food prices in general do not rise as much as the media portray. The average annual increase is 2 to 4 percent over the last decade, according to the annual Consumer Price Index. Estimates are the CPI for food and beverages will increase above 4 percent in 2007 -- which is nowhere near the increase in energy prices.
Digging deeper in the CPI numbers shows that prices for foods relying on corn products rose less in the past year than the 7 percent bounce in fruit and vegetables -- which has absolutely nothing to do with corn prices.?The "rest of the story" that is not being told is that energy prices are a far larger culprit in higher food prices. The use of energy adds significant costs to foods as they move through growing, processing, packaging and shipping.
A study issued June 14, 2007 by John Urbanchuk of LECG LLC indicated that a 33-percent increase in crude oil prices results in a 0.6- to 0.9-percent increase in food prices -- compared to only a 0.3 percent increase in food prices from a 33-percent increase in the price of corn. In other words, higher energy prices have twice, to almost triple, the effect on food prices than an equal increase in corn prices. ?The bottom line is that the corn-food price link is grossly overstated. The recent bombardment of media coverage pointing the finger at rising ethanol production as the sole cause of higher food prices is a slap in the face to farmers and ranchers who are the best in the world at producing an abundant supply of safe and affordable food for our country. ?In light of the growing concern about tainted food imports from China and other countries, one would hope there would be a greater appreciation for America farmers who work long and hard hours to help meet this country's food and energy needs.
Critics blame farmers for getting too many federal subsidies when prices are low and blame them again for high food costs when commodity prices are high and they don't receive subsidies. It almost seems as if some consumers and some in the media would be more content if farmers never made any money. ?While there is plenty of rhetoric in the media about higher consumer food prices resulting from higher corn prices because of demand for ethanol, nearly all the evidence points to other factors. The reality is that higher corn prices have had very little impact on food prices.