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)
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.
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).
a high-quality feed product known as “distillers
grains” is produced as a co-product of ethanol production. The
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.
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.
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
the use of ethanol reduced
important to compare “apples to apples” when discussing fuel subsidies.
According to the Government Accountability Office (GAO), the
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
American Lung Association of Chicago credits ethanol-blended gasoline with
reducing smog-forming emissions in the
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.
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.).