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Corn prices have little impact on food costs, says farm federation

by 5m Editor
10 July 2007, at 9:33am

US - The “food versus fuel“ issue is one of rhetoric, not reality, according to an American Farm Bureau Federation (AFBF) economic report released today.

Corn demand to make ethanol has little to do with the recent rise in food prices, said the organisation. Weather and high energy costs are more to blame.

AFBFsaid that nearly all the evidence points to factors other than ethanol demand. An early freeze had zapped fruit and vegetables crops, low world supplies of wheat, falling milk production in response to last year’s low prices and the rising cost of energy, have all made a considerable impact on retail food prices.

“There is little evidence that any food category has been affected by higher corn prices in any significant manner,” said AFBF economist Terry Francl.

He said tj the value of corn usually is just a tiny fraction of a product’s price. For example, the value of corn that goes into a box of corn flakes has been estimated to be 2.2 cents.

“Even if the cost of the corn doubled, it is hard to understand how this relates to an increase of 10 to 20 times more in the price of a box of cereal,” he said.

According the Labour Department’s latest Consumer Price Index (CPI) food and beverage prices increased by around four per cent in May 2007, compared to a year ago. Meanwhile, production of ethanol, mostly from grain corn, has more than doubled since 2002. Tax incentives and a government mandate that increasing amounts of the nation’s fuel supply come from renewable fuels also are driving ethanol production even higher. As a result, the price of a bushel of corn has nearly doubled to $4 since late 2005.

“Ethanol is unfairly getting a bad rap because people aren’t looking at all the other factors that are involved in food prices," said Mr Francl.

In addition, the most recent crop production report indicates a robust corn crop for this year, which should further ease any remaining concerns about higher ethanol production.

Terry Francl's Report: Fuels Versus Food: Is it Rhetoric or Reality? (PDF - 7 pages)

5m Editor