Critics of ethanol, especially corn ethanol, usually attempt to point to ethanol as the reason for rising food prices. The argument seems fairly straightforward – using corn for ethanol creates a higher demand for corn, which increases the price of corn and, subsequently, raises the price of food across the board.
But it turns out it probably isn’t that simple (is anything?).
A study performed by ABF Economics last summer found that there was no direct correlation between an increase in ethanol use and the corresponding increase in food prices. The study focused on the relationship of food costs to production costs, other energy costs, and corn prices.
Among other things, the study found:
- Ethanol production and the demand for corn to produce ethanol have increased as a result of the RFS mandates. Corn prices also have increased over this period of time but increased demand to produce renewable fuels consistent with the RFS is only one factor behind the increase in corn prices. These factors included a sharp increase in petroleum prices, rapidly expanding global demand for food and agricultural commodities, commodity market speculation, and an expansive U.S. monetary policy.
- The food processing industry accounts for a larger share of consumer food costs than does production agriculture. Moreover, energy prices play a more significant role in costs for food processors than do the prices for any individual agricultural commodity.
- The RFS has not had an adverse impact on consumers’ ability to afford a safe and healthy food supply. Although food prices have increased modestly faster than overall inflation in the past several years consumers are not spending a greater share of income on food than was the case before the RFS was implemented.
Click here for a full report and analysis of the study by the Renewable Fuel Association.
Granted, the report was commissioned by the Renewable Fuel Association, and that may cause some credibility problems for some folks. However, the full study can be found here and you can see the methodologies and procedures used to come to these conclusions. In fact, American Progress estimated that by 2022, with increasing the amount of biofuels used under the RFS, will only increase the cost of food by $10 per person annually.
In any case, the cost of food compared with new technologies and uses, including ethanol, is much more complex than simply blaming ethanol for raising food costs.
