By Roger Johnson, NFU President
For too long, many have argued that utilizing ethanol means choosing between food and fuel for Americans. This is a false choice. We have more than enough corn to properly feed America and still fuel it. The rising grocery prices we have seen recently are not due to increased demand for corn because of ethanol, but are a result of a variety of other factors.
One of the key reasons that grocery prices have climbed recently is the rise in oil prices. According to data obtained from the Bureau of Labor Statistics, during the past ten years, the price that consumers pay for ham at the grocery store actually correlates more closely with the price of oil than it does with the price of hogs on the commodities market. Over the past 15 years, the price of bread has been more closely tied to oil prices than wheat prices, and the price of milk at the grocery store has more closely followed the price of oil than the price farmers receive for milk. In the same time span, the price of corn flakes has been more closely related to the price of oil than the price of corn.
This is not surprising. According to the U.S. Department of Agriculture (USDA) Economic Research Service, farmers receive only 15.8 cents of every dollar that consumers spend on groceries. The rest of that food dollar goes towards things like transportation, processing, etc. So clearly, as grocery prices go up, increasing commodity prices are not one of the main causes.
While certain organizations representing grocers point to rising commodity prices as the reason for high grocery prices, this argument is disingenuous. Filings with the Securities and Exchange Commission show that a number of national grocery stores experienced a significant increase in earnings this past year while seeing only a minor bump in their cost of goods sold., including Kroger (194 percent increase in earnings, eight percent increase in costs of goods sold), Safeway (192 percent and one percent), and Whole Foods (64 percent, 11 percent). That means that consumers were paying more for their groceries and very little of that additional revenue was going back to the producers of food, America’s family farmers and ranchers.
Foreign demand for commodities, particularly corn, is also pushing prices upward. According to Bloomberg, China is expected to import quadruple the amount of corn over last year’s imports because of a combination of increased demand, weather issues, and decreased grain reserves. China has traditionally produced enough corn to be self-sufficient and has had very little need to import it. This additional demand and questions about China’s ability to feed itself going forward have contributed to the rise in corn prices.
Ethanol opponents love to point out that, according to USDA, ethanol will account for 40 percent of corn usage. One-third of every bushel of corn is returned to the animal feed market, according to the Renewable Fuels Association, meaning that 23 percent, not 40 percent, of the U.S. corn crop is used for ethanol. This is a major difference, one that is often ignored by those who oppose ethanol.
Ethanol detractors often suggest that ethanol is inefficient. This argument is based on outdated data. A 2010 study by the Office of Energy Policy and New Uses found that every unit of energy used to create ethanol resulted in 2.3 units of ethanol, so clearly ethanol is a net positive when it comes to energy production. Ethanol also reduces our demand for oil. In 2010, 13.23 billion gallons of ethanol were produced according to American Fuels, displacing approximately 9 billion gallons of gasoline. That is 9 billion gallons of fuel produced right here in America rather than by an oil-producing nation overseas. The United States currently spends $300 billion per year purchasing foreign oil. Increased ethanol production is a way to keep more of that money right here in the United States.
A recent study by Iowa State University and the University of Wisconsin found that in 2010, the presence of ethanol on the fuel market decreased gasoline prices by 89 cents per gallon. That is a significant savings for American families that are currently struggling to make ends meet, and a big reason why we need to continue working to produce renewable fuels to curb our usage of foreign oil.
“Food v Fuel” is a false choice. We do not have to choose between fueling and feeding America. Rising commodity prices have very little to do with the rise in grocery prices. Other factors, like higher oil prices and increasing grocer profits, account for the higher prices that American consumers are paying for their food. Not America’s family farmers and ranchers.