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Corn, Food Price Correlation WeakCorn, Food Price Correlation Weak

New study, conducted by Informa Economics takes long-term look at crop prices and their relationship to grocery bills.

Willie Vogt

December 10, 2007

3 Min Read

The long-brewing argument over rising corn prices and their relationship to higher grocery costs for the consumer got a critical review in a new report from Informa Economics, a research firm with a major ag focus. The study, commissioned by the Renewable Fuels Foundation, found that when prices for meat, milk, poultry and eggs little correlation could be found with corn prices.

The report also showed that the total cost of a product that could be attributable to corn - when corn is in the product - is 19%, which is down from 37% in 1973. In effect, corn has a small piece of the value of food products than ever before. While the other 81% includes labor, fuel, transportation costs - or what the report writers called "the marketing bill." Report writers say the marketing bill "has a higher correlation with the consumer price index than does corn."

One factor that plays into the food price debate is how much food is actually consumed at home. The 19% correlation reflects at-home food consumption, but with 58% of meals consumed outside the home, Bruce Scherr, CEO at Informa, says the commodity correlation is even lower.

Bill Lee, chairman, RFF, commented during a morning conference call, that "our friends in the food, livestock and petroleum industries have been you could say "super sizing" the impact commodity prices have on food,"

The report shows little relationship between corn prices and food prices even when researchers tried to account for the lag time between a market price for corn and when that corn might get into the food stream. "The corn price would be considered a statistically insignificant variable in determining what drives the food CPI," the report states.

Adds Scherr: "The statistical analysis plainly details that energy-intensive activities such as processing, packaging and transporting, as well as the cost of labor, have a far greater impact on consumer food bills than the price of grain. It may be politically convenient to blame ethanol for rising food prices but it doesn’t make it factually accurate. As far as Informa is concerned, this debate is settled."

Corn demand has changed in the past decade. Part of the demand equation that rose is ethanol use which now consumes more than 2 billion bushels of corn annually. The second impact is a rising export market which is buying U.S. corn at near-record levels.

In essence, the report writers concluded that the data shows there's little evidence to the claim that the move to ethanol has had an impact on food prices. The report below shows that regardless of where the corn price is, food prices will rise.

The largest impact of higher commodity prices has been on middle-players in the food industry, who have absorbed the higher crop prices. "There has been pressure on the middle players in the value chain, or consumers have found cheaper alternatives in the non-food sector [to hold down CPI]," Scherr comments.

RFF's Lee says he hopes this report will "be the end of the disingenuous comments from the food and livestock industries about the impact of corn prices and ethanol on food prices."

About the Author(s)

Willie Vogt

Executive Director, Content and User Engagement, Farm Progress

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