The food and fuel debate to date has been too simplistic, focusing on biofuels, rather than recognizing the significant impacts of fast rising petroleum prices, increasing Asian demand for protein and grains, and weather-related events like Australian and European droughts. All commodity prices are on the rise—biofuels are a bit player.
The corn kernel is composed of starch, fiber, oil and protein. The highest value for feed is the protein. Ethanol production, on the other hand, converts the starch into fuel and in the process concentrates 100 percent of the fiber and protein into a higher value feed product called distiller’s grain. Ethanol producers sell the high-protein distiller’s grains as animal feed.
As a result, there is no diversion of the most important food component of corn (protein). Rather, it is processed and sold back into the market as a value-added feed product.
A new study by researchers from Texas A&M University concluded that the underlying force driving price changes in the agricultural industry, along with the economy as a whole, is overall higher energy costs, evidenced by $100 per barrel oil and not the price of corn or ethanol’s effect on the corn prices. The study noted that eliminating the recently passed Renewable Fuels standard would not result in significantly lower corn prices.
The price for crude oil was $20 to $25 per barrel five years ago, according to U.S. Department of Energy. Today it is above $112 a barrel. Price increases for food have less to do with ethanol or biodiesel production than they do with the nearly five-fold increase in petroleum price over the past five years. Several studies have shown that record petroleum prices, which permeate the entire food system for all types of food, have three times the food price impact as biofuels.
There is less than a nickel’s worth of corn in a box of Cornflakes, and less than two cents worth of corn syrup in a can of soda.
80 percent of the average retail price of food is added after it leaves the farm, and the foods with the highest price increases in 2007 were fruits and vegetables which have little to do with biofuels.
Corn is not the only commodity rising in price -- all farm product prices are higher. Loek Boonekamp, with the Agro-Food Trade and Markets Division of the Organisation for Economic Cooperation and Development (OECD), said in January 2008 that the surge in farm product prices would have happened without the increase in biofuel production.
An increasing standard of living in China and India, droughts in Australia and Europe, regional natural disasters/pest/diseases, increasing labor and fuel costs globally, a declining US dollar driving exports, and corporate profits at retail have all contributed to higher food costs.
The rise in corn price has reduced farmers’ dependence on federal farm programs, saving taxpayers $8 billion in farm payments.
U.S. corn acreage is no greater than it was in 1944, while corn yield has increased nearly five-fold.
2006-07 – ethanol accounted for about 17 percent of the corn supply, equal the amount exported, and there was still an 8 percent surplus.
According to the USDA Economic Research Service, the inflation-adjusted price of corn today is still cheaper than it was in the 1970s, 1980s and the 1990s.
Biofuels account for 4 percent or less of total worldwide coarse grains.
World food experts agree that a major key to improving world hunger is expanding local production around the world. According to the Institute for Agriculture & Trade Policy, “Higher commodity prices do not necessarily translate into higher food prices in developing countries. In fact, higher commodity prices could actually increase food security in developing countries by reducing agricultural dumping.”
A recent Wall Street Journal story about agricultural revival in sub-Saharan Africa states: "The rural boom has been brought about by rising global prices for farm products and low labor and land costs. Exports of vegetables, fruits and flowers, largely from eastern and southern Africa, exceed $2 billion a year, up from virtually zero 25 years ago."
Surge in Food Production Aids Millions, WSJ, January 9, 2008