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Corn Gets Bad Rap for Food Price Increases

A new study, funded by the Renewable Fuels Association, shows that rising corn prices play a much smaller role in food cost hikes than energy price spikes.

Farmers across the country have seen the stories, both nationally on the big networks and on local television stations. Food prices are rising and corn is the culprit. While corn prices are up about 33% from where they were a year ago, the impact of that price rise is a much smaller part of food cost increases than being reported, according to a study released this morning by the Renewable Fuels Association.

"Plain and simple, corn prices are not the sole reason, or even the major reason for higher prices in the grocery aisle today," says Bob Dineen, RFA CEO.

In fact, the study, conduced by John Urbanchuk with LECG LLC, notes that the boost in corn prices could have had no more than a 0.3% increase in food prices while a similar increase in energy costs accounts for 0.6 to 0.9% of the rising cost of food - or more than twice the impact.

"Corn is part of a portion of food products," Urbanchuk points out. "And it is only a small part of those foods where it is included. A large portion of food price increases come from foods that don't contain corn including fish, fruits and vegetables."

Dineen says there's a concerted effort by the oil industry to fight off ethanol industry growth in a public relations battle that brings livestock and poultry people out against ethanol. "They're not looking at the energy bill in Congress," he notes. "The 36 billion gallons in renewable fuels will not be 36 billion gallons from grain, but 15 billion gallons from grain," he notes. "The industry would have been there anyway. Instead the added 21 billion gallons will come from cellulosic sources."

He notes that the bill in Congress will do for cellulosic ethanol what the 2005 energy bill did for grain ethanol.

During the conference call, another fact was explored. Today, the U.S. ethanol industry produces about 6 billion gallons of product that flow into cars and trucks across the country. If that supply were to go away tomorrow, the U.S. would have to import more gasoline. In effect, today's ethanol production may be holding down energy prices over what they could be in a market without renewable fuels.

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