Industry groups debate link between ethanol and food prices

As the debate over ‘food versus fuel’ heats up among the public, agriculture and food industry groups have begun to come under fire from consumer organizations which blame failed energy policy, along with American agriculture, for high prices at the grocery store.

In response to public concern over escalating food and energy prices, Congress held hearings last week which offered a voice to the myriad interests involved in fuel and food production. Livestock and meat industry organizations have sought solutions to the crisis, as record high grain prices have put the protein production sector into trying financial times. American Meat Industry (AMI) President and CEO J. Patrick Boyle was among those who submitted testimony to the House Energy and Commerce Subcommittee on Energy and Air Quality when he explained that the mandate for increased biofuel production is indeed inextricably linked to the rising cost of food.

"Valuing food for its energy content instead of nutrition is adding unnecessary inflationary pressure on the U.S. economy," he said.

Boyle said the goal of energy security is commendable and should be considered in relative context to risk posed to domestic and international food security.

"Congressional and administration leaders should develop and implement a plan to decouple the increasing price correlation of food from fuel," said Boyle.

Boyle noted that in 2007, livestock and poultry producers saw their feed prices rise by more than 65 percent and are anticipating an equally difficult environment for 2008.

"Food to fuel mandates and subsidies have had a profound impact on the meat and poultry industry and its ability to source affordable feed," he added.

Boyle pointed out that the The Energy Independence and Security Act of 2007, its predecessor the Energy Policy Act of 2005 (EPAC), and existing biofuel subsidies and trade protections have concentrated the adverse impacts on animal agriculture producers and consumers’ food budgets.

"When the EPAC was signed, food inflation was coincidently at its 10-year average of 2.3 percent. In January 2008, the CPI food index was 4.9 percent, which is more than twice the 10-year average. Food inflation creates a drag on the economy and reduces the purchasing power of consumers," Boyle noted.

The American Farm Bureau Federation (AFBF), in an attempt to balance the best interests of both farmers and ranchers, has said there is no short-term fix for the complex global food situation. In a statement on global food prices submitted to Congress, AFBF said there are many factors causing an increase in food prices around the world that must be addressed with thoughtful and comprehensive measures.

Escalating energy prices, demand and weather are but a few culprits for rising food prices, said AFBF. The organization also said the overall food price issue is much larger than the U.S. "It is global and requires global solutions," said the organization.

AFBF cited a February 2008 report by the United Nations’ Food and Agriculture Organization that "identifies the rising cost of energy, increased worldwide demand, weather impacts on crop production, lower stocks levels, and the production of biofuels and the operation of financial markets as part of the current global food situation. This has resulted in world price increases of 80 percent for some products from 2005 to 2008," said AFBF in its statement.

The National Corn Growers Association (NCGA), vocal backers of the increased mandate for more corn-based ethanol, disagree with the assessment of AMI and other meat industry groups which see the increased renewable fuels standard as a blow to the economy.

NCGA lists the primary factors contributing to rising food prices as skyrocketing oil prices, surging global demand for grain and meat from nations like China and India, hedge fund speculation on commodity markets, droughts in Australia and elsewhere, a weak dollar encouraging exports, and agricultural policies around the world which have limited the productivity of farmers from Europe to Asia.

"Making corn ethanol the scapegoat for the high price of food is unwarranted," said NCGA CEO Rick Tolman. "Efforts should be made to look into the $128 billion profits of the oil industry. To put things into perspective, in 1999 a barrel of oil cost $10, compared to $120 today. Consumers lose when the oil industry plays a cat and mouse game with the American people. Truth be told, Americans are actually saving $69 billion each year at the pump thanks to biofuels."

"Without question, the common denominator underlying all of the crises affecting the globe today is the skyrocketing price of oil," added Renewable Fuels Association President Bob Dinneen. "With OPEC projections for oil soon reaching $200 per barrel, attempts to jettison the still-growing biofuels industry because of misplaced blame would relegate America and the world to more of the same. The fact is ethanol is helping reduce prices at the pump and keeping oil and gasoline prices lower than they might otherwise be. Considering the integral role oil plays in every part of the food production chain, forsaking ethanol would send both food and fuel prices still higher." — Tait Berlier, WLJ Editor