Bio-fuels Impact on Food Pricing Depends on Location

The impact of bio-fuels on the price of food has been debated almost from the initiation of the U.S. Renewable Fuels Standards (RFS). Most U.S. studies place the impact at 25% or below. A recent EU study places it at 75%. I have seen figures that indicate the impact to be around 150% in Africa. In spite of the apparent inconsistency of these numbers, they reflect the reality of food in each of the areas mentioned.

In the U.S., the majority of food consumed is highly processed. It comes frequently in ready-to-eat packaging, or in heat-and-serve form. In that case, the raw food product makes up only a small percentage of the overall cost of the finished product. A significant increase in the raw commodity price has only minimal effect on the cost of the consumer-ready item.

In Europe, food preferences favor less processing. The items are impacted more by increases in the basic commodity price. In Africa, food items are frequently the raw commodity and all preparation occurs after purchase. In that case, the raw commodity price makes up an extremely high percentage of the cost of the item with the remainder going to transportation costs and profits through the production-to-retailer chain.

The bottom line is that bio-fuels do have a significant impact on worldwide food prices. The severity of that impact depends on the affluence of the society that we are examining. Those least able to afford the impact are the ones most greatly affected.

Politcal Cornpone

Corn has always been a part of politics. It is something that the voting public has come to expect. It is also about the gentlest description used for what sometimes comes out of the mouths of those running for public office.

This year it has taken on a new meaning. The powerful lobbies behind the ethanol industry are heavily involved in attempts to influence the race for the Presidency. That seems interesting to me considering the fact that many ethanol plants are only marginally profitable and others have sold recently due to lack of profitability. Still others have delayed plans to build more plants or to expand existing capacity due to lack of profitability.

So, who is behind the lobby groups? Could it be the large agricultural interests that are reaping the benefits from $8 corn?

I am happy to see farmers realizing the benefits of high corn prices. I'm much less excited about the impact that those same high corn prices are having on other things such as food prices and livestock feed. I'm irritated that we are supporting those prices with tariffs against importing less expensive sugarcane-based ethanol produced in Brazil. I am angry that we are propping up the domestic ethanol industry which is damaging the livestock industry, raising fuel prices and negatively impacting food prices with a $0.54/gallon subsidy. This is not energy security. This is tax-and-spend politics in a different form.

Dem's Windfall Profit Idiocy

The proposed windfall profits tax on the oil industry is very worrisome to me. First, it penalizes domestic companies while doing nothing to foreign companies. Second, it places in the hands of government the determination of what is a reasonable profit, Third, it discourages domestic oil exploration, Fourth, it doesn't address the real problems -- increasing supply and removing the Renewable Fuels Standards (ethanol mandates).

How could we as a nation have allowed such foolhardy thinking to represent our interests in the Senate and House? Not only is the Democratic leadership in Congress pushing such ill-considered action -- reminiscent of the failed economic policies of the Carter administration -- but their chosen candidate for President is supportive of those same policies. What in their proposal does anything for gasoline prices at the pump? Nothing. In fact, the likely outcome will be that prices increase further.

The Backward Party for America's Demise

How totally backward is the thinking of the Democratic party. Unemployment numbers rise so they want to increase unemployment benefits. Increasing the benefits makes it easier for people to stay unemployed. What they need to do is focus on jobs. Instead, they are talking about increasing taxes on businesses -- that way the businesses can't afford to hire anyone. They especially want to hit the oil companies. What they need to do is make permanent the Bush tax cuts (stimulate business activity), get rid of the Renewable Fuels Standard (oil prices/gasoline prices), open ANWR and the outer Continental Shelf to drilling and cut government spending. They have it completely backward.

Is it Just a Coincidence?

The chart shows an interesting coincidence don't you think? When did the Renewable Fuels Standards included in the Energy Policy Act of 2005 go into effect? Sept. 1, 2007. When did oil prices head for the roof? I think you can read the chart.

U.S. Senator Cornyn on Ethanol

U.S. Senator John Cornyn has graciously provided the guest posting below.

Hello Panhandle Poet readers…it’s a privilege to guest post here.

I wanted to touch base with you regarding an issue which is very pressing in the Panhandle, ethanol.

When first introduced to the marketplace, it was hoped that ethanol would help revitalize rural America, lower the price we pay at the pump and reduce our dependence on foreign oil.

That’s a worthy goal, yet the government’s focus on ethanol has produced a problem. There have been unintended adverse consequences to our economy from the focus on ethanol production. Chiefly, since February of 2006 the combined price of corn, wheat and soybeans has increased more than 416 percent.

For this reason and many more, I co-sponsored legislation which was introduced recently to freeze the renewable fuel standard corn-based ethanol mandate at current 2008 levels.

In the panhandle, like other places, the effect of ethanol production has been mixed. While a few have benefitted from it, a great many others have suffered.

As more and more farmers grow corn for ethanol production, cattle feeding ration prices have shot sky high. Mandates, along with the high cost of fuel, are squeezing every bit of profit out of cattle feedlots today.

As consumers continue to see rising food and fuel prices, freezing the corn-based ethanol mandate will allow us to re-evaluate the consequences of using food for fuel and determine the best way forward. Texas will remain a leader as we work to diversify our nation’s energy supply to include alternative and renewable sources, but in the meantime Congress must exercise its oversight role to ensure there are no further unintended consequences. A freeze of the mandate will allow time for necessary assessments and reduce increasing grocery, grain and feed prices.

Last year, the Energy Independence and Security Act (EISA) provided the Environmental Protection Agency (EPA) the authority to waive the mandates, or adjust them as necessary to provide relief for consumers.

Last month, I joined Sen. Hutchison and others in sending a letter to EPA Administrator requesting an update on the pending rule-making process for the waiver of all or portions of the ethanol mandate passed by Congress in 2007. The letter also urged the EPA to consider the sharp rise in food prices as they review the mandate.

Freezing the mandate at its current level for one year is not a long term solution, but it is a good start towards finding one.

My heartfelt thanks go to the Senator for seeking to address this issue and for providing this post.

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Panhandle Poetry and Other Thoughts
Common Sense Agriculture, Conservation and Energy