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Ethanol boosting food costs

Deseret News (Salt Lake City), May 2, 2008 by Matthew Perrone Associated Press

WASHINGTON -- The Agriculture Department's chief economist told Congress on Thursday that prices for corn and other food commodities will remain at "historically high levels" in coming years, as the U.S. ethanol industry expands.

Congress' Joint Economic Committee met to discuss the causes behind surging food prices that have set off riots abroad and grocery-store sticker shock in America.

Joseph Glauber, chief economist for the Department of Agriculture, said that if biofuels like ethanol continue absorbing more U.S. crops, prices for soybeans and other staples will rise, including the grains used to feed livestock. Droughts, increased demand for food in developing countries and higher fuel costs have greatly contributed to current food prices, he said.

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Eventually, food-price inflation will slow, Glauber said, assuming weather patterns return to normal, agriculture stockpiles are replenished and foreign countries increase plantings.

But lawmakers are worried about the short-term impact on consumers and the economy.

"The anxiety over higher food prices is going to be just as widespread and will equal or surpass the anger and frustrations so many Americans have about higher gas prices," said Sen. Charles Schumer, D-N.Y., who chairs the committee.

The consumer price index for food grew 5 percent last year, the highest gain in 17 years. Egg prices jumped 40 percent, while flour prices have jumped 50 percent since January, according to the American Bakers Association.

But the president of the National Farmers Union, whose members have been enticed to grow more corn, argued that biofuel production has had little impact on rising food prices. Instead, he pointed at $120-per-barrel oil, which has made it more expensive to cultivate land and ship crops to market.

"While ethanol production is being characterized as the root of all evil, the oil and gas industry continue to receive billions of dollars from the federal government, while major oil companies make record profits," said Tom Buis, the president of the farmers union. He urged lawmakers to cut government subsidies to oil and gas providers and place a tax on oil profits to help offset consumer expenses.

Still, some lawmakers are reconsidering the heavy promotion of ethanol as an alternative to gasoline. Four months ago, ethanol's promise to slow climate change and reduce dependence on foreign oil persuaded Congress to mandate a five-fold increase in its production by 2022.

Farmers responded to government incentives by planting 93.6 million acres of corn last year, the largest planting in more than 60 years. But nearly a quarter of that crop will be set aside for ethanol production, up from less than 15 percent in 2005.

Two Republican lawmakers this week proposed curtailing ethanol- production mandates, questioning the wisdom of using crops for fuel amid rising demand for food. The Senate's Homeland Security Committee has scheduled a hearing on the issue for next Wednesday.

While nearly all experts agree increased biofuel production by companies such as Archer Daniels Midland Co. and Pacific Ethanol Inc. has contributed to the run-up in food prices, there is little consensus on the scope.

The ethanol industry says ethanol and other biofuels account for just 4 percent of the price surge, while the Department of Agriculture says the figure is closer to 20 percent. Earlier this week a group of international scientists recommended halting use of crops for biofuel, saying it would cut corn prices 20 percent.

Ethanol boosting food costs

Deseret News (Salt Lake City), May 2, 2008 by Matthew Perrone Associated Press

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