Ethanol issue intensifies

0 Comments | Deseret News (Salt Lake City), Apr 30, 2008 | by Christopher S. Rugaber Associated Press

WASHINGTON -- Grocers and food companies are seeking the help of Congress as they square off against farmers over the role of ethanol production in pricier staples at home and riots abroad.

The American Farm Bureau Federation and other farm groups plan to defend government support for ethanol, which they say has helped lower gas prices, in two press conferences scheduled for today.

Trade groups such as the Grocery Manufacturers of America, meanwhile, argue that increased production of corn for ethanol has driven up prices for corn, wheat and other grains. Those increases, in turn, have boosted prices for bread, meat and dairy products.

Congress' Joint Economic Committee will hear from both sides of the fence Thursday, while a House Energy and Commerce subcommittee will hold a hearing on government ethanol policies May 6.

Fueling the debate are prices for corn, wheat and other grains that have reached 30-year highs, touching off protests in Haiti, Egypt and Malaysia and dramatically increasing Americans' grocery bills.

President Bush weighed in on the issue Tuesday. At a press conference on the economy, he defended increased ethanol production, saying, "it's in our national interest that our farmers grow energy, as opposed to us purchasing energy from parts of the world that are unstable or may not like us."

Bush, echoing many farm groups, attributed most of the recent run- up in food prices to greater demand from China, India and newly wealthy developing countries, as well as bad weather and higher energy and transportation costs.

The International Food Policy Research Institute estimates that the price of wheat has tripled since 2000, while corn prices have more than doubled.

The IFPRI, a think tank supported by governments and private foundations, also concluded that 30 percent of the rise in food prices between 2000 and 2007 is due to increased production of biofuels. About 30 percent of U.S. corn production will go to ethanol this year, the group says.

Industry groups such as the Grocery Manufacturers of America say that while Congress may not be able to control the weather, it should scale back government-mandated ethanol production requirements. Those incentives, they argue, are causing farmers to plant corn rather than wheat and other grains.

"Certainly, reducing the amount of corn (for energy purposes) would have an immediate impact on commodity prices and ultimately on the price of processed foods," said Scott Faber, vice president of federal affairs for GMA.

Faber said the group's members -- including Safeway Inc., Dean Foods Co. and ConAgra Foods Inc. -- are doing their best to absorb higher costs, but most will be passed onto consumers.

In December, Congress passed an energy bill that mandates increasing ethanol production to 36 billion gallons a year by 2022 from 7.5 billion gallons in 2012, although 21 billion gallons are supposed to come from so-called cellulosic ethanol, such as switchgrass and wood chips, while the rest would come from corn.

On Monday, Sen. Kay Bailey Hutchison, R-Texas, proposed freezing the ethanol mandate at current levels to reduce ethanol's impact on world food prices.

Democrats are reportedly also considering adjusting the subsidies farmers get for planting corn for ethanol.