July 23 , 2007

Rising energy costs drive up food prices

Press Release

As corn prices increase, some critics blame higher food prices on ethanol. But a new study reveals that rising energy costs are more to blame than increasing demand for corn for ethanol production. Because raw ingredients like corn comprise only a small fraction of food costs, the cost of energy used to process and transport food impacts prices more drastically than the demand for corn for ethanol production.

“It’s a myth that ethanol is responsible for rising food prices,” said Todd Sneller, administrator of the Nebraska Ethanol Board. “The truth is that food prices are higher because energy prices are higher. The effect of the demand for corn ethanol on the price of food is negligible.”

The price of a bushel (56 lbs.) of corn was $2.70 in September 2006, and peaked at $4.60 in February 2007. “This effectively raised the price of corn by less than four cents per pound. People obviously aren’t getting the whole story, Sneller said.

Between 2006 and 2007, food costs rose by 2.1 percent—less than the 25 year average 2.9 percent, according to the US Department of Commerce’s Consumer Price Index.

While the demand for ethanol has increased, Sneller said that advances in technology would lessen the already minimal effect of ethanol demand on the price of food.

“Bushel per acre yields increase every year, while ethanol producers continue to find new ways to squeeze more fuel out of less corn. Second generation ethanol production from non-food sources like corn stalks or switchgrass can boost ethanol production, increase our energy independence and further decrease the minimal impact ethanol has on food prices,” Sneller said.

The study, sponsored by Ethanol Across America, can be downloaded at http://www.ne-ethanol.org/pdf/07CFDC-003_IssueBrief_foodfeedfuel.pdf