Increased ethanol production has dramatically increased consumer food prices.

Reality: The impact of ethanol on food prices has been greatly exaggerated.

First, retail food products such as cereals, snack foods and beverages contain relatively little corn. For example, a standard box of corn flakes contains approximately 10 ounces of corn. Even when corn is priced at $4 per bushel, a box of corn flakes contains less than a nickel’s worth of corn (Source: U.S. Department of Agriculture Economic Research Service). According to the U.S. Department of Agriculture, labor costs account for 38 cents of every dollar a consumer spends on food. Packaging, transportation, energy, advertising and profits account for 24 cents of the consumer food dollar. Just 19 cents of every consumer dollar can be attributed to the actual price of food inputs.  

Second, food prices have not increased proportionately with corn prices. The U.S. Commerce Department reports that from January 2006 to March 2007, corn prices nearly doubled but consumer food costs increased only 2.1 percent. This percentage increase is less than the 25-year average CPI of 2.9 percent. 

So what does influence retail food prices?  One recent study suggests that energy prices have twice the impact on retail food prices that grain prices do (Source: John Urbanchuk, LECG, LCC, June 2007). Over the past two and a half years, increases in crude oil prices have added an additional dollar per gallon to the price of regular gasoline. Americans consume about 140 billion gallons of gasoline each year, so a dollar per gallon price increase equates to a $140 billion impact. Seven billion bushels of corn each year is used for food and feed purposes, so an increase of $1 in the price of corn results in a $7 billion impact on prices consumers pay (Source: Acting USDA Secretary Chuck Conner, U.S. Consumer Federation Address, Sept 2007)

As current ethanol production continues to grow, the U.S. will not be able to meet the demands of global food and feed markets.

Reality: A sad reality of world hunger is that it generally due to problems with food access, not food production. 

According to the United Nation’s Food and Agriculture Organization, the most likely causes of hunger are a lack of infrastructure and access to capital – not food scarcity.

Furthermore, U.S. farmers have easily met all demands for U.S. corn from foreign markets. Even though corn use for ethanol has risen dramatically over the past several years, American corn growers continue to serve as the world’s top exporter of corn. USDA’s 2008 forecast predicts that U.S. corn exports will increase by $600 million due to strong foreign demand and reduced competition.

There is not a direct relationship between commodities and food as some might assume. Both corn and soybeans are used primarily in the production of meat through feed for livestock and not used in actual retail food products. The amount of field corn used for human food processing (starch, sweetener and cereal) ranges between 5 percent and 8 percent of total corn usage. Also, corn demand for food processing markets has been flat for 15 years (Source: USDA, Pro Exporter Network).

Finally, a high-quality feed product known as “distillers grains” is produced as a co-product of ethanol production. The U.S. exports large amounts of distillers grains annually. In 2006/2007, ethanol plants produced more than 12 million metric tons of distillers grains. This product is fed to livestock and poultry, helping to replace corn that can then be used for other purposes. It is estimated that distillers grains displaced more than 500 million bushels of corn from feed rations in 2006, allowing that corn to be used for other uses (Source: www.foodandfuelamerica.com).

There won’t be enough corn to continue the strong growth in the ethanol industry.

Reality: Thanks to continued increases in yields and ethanol processing efficiency, farmers are expected to be able to meet rising demand for corn. 

The amount of corn farmers can grow per acre has quadrupled in the last five decades – from 40 bushels per acre in 1950 to 160 bushels per acre in 2004. If yields continue to increase at the rate of the last 10 years, this average will reach 180 bushels by 2015. An increase of just two bushels per acre results in an additional 150 million bushels of corn, which can produce 420 million gallons of ethanol (Source: National Corn Growers Association).

At the same time, technology improvements will mean that we can squeeze more out of each bushel of corn. The average ethanol conversion rate today is 2.8 gallons per bushel, up from 2.5 gallons per bushel several years ago. The conversion rate may soon be as high as 3 gallons per bushel because of emerging processing technologies.

Ethanol supporters claim it is the total answer to our nation’s energy independence.

Reality: Instead of seeing ethanol as a silver bullet, supporters describe it as a step in the right direction for reducing our nation’s dependence on foreign oil.

While imperfect, today’s renewable fuels create a necessary foundation for future renewable fuel technologies that will offer even greater environmental and economic benefits. Just as the early biplanes were necessary first steps toward transcontinental air travel, today’s renewable fuels sector is a first step down a road that supporters believe will ultimately lead to energy independence. 

Some critics of renewable fuels may raise issues that are important to address. However, many of the concerns being raised on a national level today mimic those raised decades ago when ethanol was first emerging as a fuel option in Minnesota. Our experience has shown that ethanol can provide a real-world boost to our economy and our environment even though it has practical limitations and technical obstacles like any other energy option.

Ethanol contributes little to our nation’s energy security.

Reality: Ethanol makes a significant and growing contribution today by reducing our need to purchase foreign energy. 

In 2005, the use of ethanol reduced America’s trade deficit by $8.7 billion and thereby eliminated the need to import 170 million barrels of oil (Source: Renewable Fuels Association). As encouraging as this statistic may be, there is still need for further improvement. Right now, the U.S. imports 65 percent of its petroleum needs. By 2025, the Energy Information Agency (EIA) projects the U.S. will import 71 percent of its petroleum. A major portion of this petroleum is expected to come from the volatile Middle East, where much of the remaining known petroleum reserves exist.

Ethanol is heavily subsidized in comparison to other fuels.

Reality: Subsidies of renewable fuels are modest when compared with the subsidies directed to fossil fuels. 

It is important to compare “apples to apples” when discussing fuel subsidies. According to the Government Accountability Office (GAO), the U.S. has spent more than $130 billion over the last three decades in subsidies to the oil industry. Add to this the amount of money that the U.S. spends to maintain a major presence in the Middle East, and you begin to see the “embedded” cost in our gasoline coming from the oil imported from this region.

Ethanol has received government subsidies as well. However, with the rise in today’s market price of corn, agricultural subsidies in their current form will be reduced from more than $10 billion/year to approximately $2 billion/year. Even by factoring in the current cost of the U.S. excise tax credit to gasoline blenders, which amounts to $3 billion/year, the subsidy level is greatly reduced from previous norms.

Ethanol only provides a small reduction in greenhouse gases.

Reality: In 2006, ethanol use in the U.S. reduced greenhouse gas emissions by approximately 8 million tons, the equivalent to removing annual emissions of more than 1.21 million cars from the road. (Source Renewable Fuels Association)

The American Lung Association of Chicago credits ethanol-blended gasoline with reducing smog-forming emissions in the Chicago area by 25 percent since 1990.

The U.S. Department of Energy’s (DOE) Argonne National Laboratory estimates that the use of 10 percent ethanol blends reduces greenhouse gases by up to 19 percent compared to conventional gasoline. 

In 2002, General Motors commissioned a “Well-to-Wheels” life cycle analysis of energy use and greenhouse gas emissions. The study compared 15 propulsion technologies and 75 different fuel pathways. The study found E85 reduces greenhouse gas emissions more than any other alternative fuel. Phase 2 of General Motors’ study, released in May 2005, concluded there is no better way to address petroleum fuel use and carbon dioxide emissions than by using ethanol. Hybrid and diesel propulsion systems reduced carbon dioxide emissions by only 20 to 30 percent, while E85 reduced carbon dioxide emissions anywhere from 75 to 85 percent.

To produce high corn yields to meet ethanol demand, applications of farm chemicals will need to be dramatically increased.

Reality: Over time, farmers are becoming more efficient and are using smaller amount of costly farm inputs per acre.

According to the USDA’s Economic Research Service, the additional increase to be expected in corn yields comes with no large increase in nitrogen use per acre. Furthermore, with the improved genetic traits of seeds, less herbicide and pesticide will be required. Since 1996, biotech crops have reduced pesticide sprayings by 500 million pounds – 6.9 percent reduction worldwide (Source: Graham Brookes, PG Economics, Ltd.).