Friday, April 18, 2008

What Proportion of Food Price Increases is Attributable to Ethanol?

If I recall correctly it takes about five gallons of fuel to plant and harvest an acre of corn (I just spent 60 seconds trying to remember if that was conservation tillage or traditional. Then I realized that farm management was not the focus of this post, I'll go with 5 gal./acre), so the argument that rising input prices is a factor has merit. Maril Hazlett at the CEP blog had some comments on the subject last month:
...Careful of the disconnect. There’s been a lot in the news lately about the high prices of commodities like corn and wheat.

Unless I’ve missed it, though, I don’t think there’s been as much coverage of this fact: that while farmers are getting record prices for some crops, they are also paying record prices for diesel fuel, insecticides, etc. According to Liberal Online (Liberal, KS):

In some instances, diesel fuel has increased approximately 68 percent. Gas and propane are up nearly 54 percent. Fertilizer has jumped 99 percent and potash tops them all at 125 percent….

The ever increasing cost of fuel impacts the Thomas County producer’s bottom line. His farm has been in the family for four generations. While cropping inputs are increasing all the time, corn, wheat, milk and other commodities are trading at record highs, too. Wheat prices are up approximately 116 percent, corn is up 30 percent, soybeans 93 percent and milk 18 percent.

While these prices for crops have surged during the past year, they haven’t gone up as high as the prices for inputs necessary to run the farm.

While catching up on family this Easter weekend, I heard exactly this same story, but about extended family down in the Reno County area. Sure, they’re getting good prices for the crops - but they are getting killed on the inputs of fuel, fertilizer, etc. Apparently the cost of RoundUp has gone up by a factor of five. And while the commodity prices will probably fall sometime, those input prices typically don’t....

In today's MIT Technology Review article,
"Battling Ethanol-Propelled Food Prices" we read:

...Part of this increase is due to corn being diverted from use as animal feed and food to use as a feedstock for ethanol production. Many other factors are also important--such as growing demand for food imports in India and China and a drought in Australia that hurt grain harvests. But the use of corn for biofuels has been singled out because it is one factor over which governments have some control. Some analysts, such as C. Ford Runge, a professor of applied economics and law at the University of Minnesota, say that the use of corn for fuel rather than food could account for about one-third of the rise in prices worldwide. The other two-thirds is split between the effects of weather and increases in demand, he says. (Runge presents his argument in "How Biofuels Could Starve the Poor," in Foreign Affairs.) A look at the grain markets gives a good idea of the role that ethanol demand plays in food prices, says Patrick Westhoff, codirector of the Food and Agricultural Policy Research Institute at the University of Missouri. In the past two years, global consumption of grains has risen by about 80 million tons, he says. About half of that increase, or 40 million tons, comes from corn used to make ethanol....