The Real Cost of Food

Time and again, we have heard the claims about how ethanol is the cause of rising food prices. The ethanol industry has been accused of driving up costs for everything from chicken wings to tortillas. Some of these tall tales have even gained traction in the press. Big Oil and some food special interest groups continue to use misinformation to try to convince consumers that they are paying higher prices for food because of the renewable fuel standard (RFS) despite the facts.

Corn, the major feedstock for U.S. ethanol production, is only a fraction of overall food and grain costs. For every $1 spent at the grocery store, more than 85.5 cents goes to pay for secondary operations such as processing, packaging and marketing. The less than 15.5 cents remaining goes to farmers and, of that, about 3 pennies to corn producers.

Digging deeper, it is obvious the falsehoods about the price of food are even more off base. No. 2 yellow corn used in the ethanol process is primarily used for livestock and poultry feed. Ethanol production uses only the starch from the corn kernel and for every bushel of corn used to produce ethanol, 33 percent goes back into the livestock feed chain in the form of a high-protein, competitively priced animal feed product.  This coproduct replaces corn and soybean acreage that would otherwise be devoted to animal feed production. According to analysis by Air Improvement Resource Inc., only 17.5 percent of net corn acres are used to produce ethanol, not the 40 percent claimed by the antiethanol crowd.

So, if corn isn’t driving the cost of food, as special interest groups would like you to believe, what is? Well, the answer is quite simple—energy costs. According to the World Bank, United Nations, USDA and countless other objective economic studies, energy costs are the leading contributor to rising food prices. Ethanol is actually reducing fuel costs for consumers and renewable fuels can help constrain the energy costs associated with food production, processing and merchandizing, while reducing our addiction to foreign oil.
 
The consumer price index for food since the RFS was implemented in 2008 has very closely tracked the increases in the overall index, growing at about 3 percent per year. In 2014, the indices are expected to continue to grow at similar rates. Consumer gasoline prices, however, have increased by more than 25 percent on average per year over the same period. In effect, consumers are getting hit twice by high fuel prices. First, they pay for the gasoline they need for family transportation. Then, they pay higher prices for the food they purchase because of energy costs. 

Food costs will only drop if Big Food is willing to pass a portion of its high profits on to the consumers. Despite their accusations of unbearable food costs resulting from our renewable energy policy, the National Restaurant Association acknowledged its members have a long record of growth, and expect to reach $683.4 billion in sales in 2014 alone, nearly double their sales in 2000. 

The most damaging fact to Big Oil’s and Big Food’s false claims is the price of corn itself. Though outside factors, such as adverse weather, can cause price spikes from time to time, farm prices for corn have historically been near the cost of production and the current year is no exception to this trend. Don’t be fooled, the oil and food industries that seek to limit consumer options at the pump and abolish the renewable fuel standard are doing so to protect their control over our food and energy markets, plain and simple. When you peel back all the rhetoric and hype, this is simply a battle about market share—no more, no less, and Big Oil and Big Food will say and do anything to maintain their record profits and near monopolistic control.

When the truth is laid out in an open and honest fashion, consumers should realize they don’t have to choose between high quality, affordable food and renewable energy that is reducing their gas bills.
First-generation ethanol reduces our dependence on foreign oil, revitalizes our rural communities, improves our environment and employs nearly 400,000 workers while driving down fuel costs for consumers. The next generation will make an even greater impact. America’s farm families will continue to feed us while American workers in the U.S. ethanol industry produce the fuel to power our cars.

Author: Tom Buis
CEO, Growth Energy
202-545-4000
[email protected]