Farm Industry News Blog

Grocery Manufacturers Association Responds to Ethanol/Food Price Issue

On December 1, Growth Energy released a new advertisement highlighting comments made by USDA Secretary Ed Schafer about the Grocery Manufacturer Association’s (GMA) blaming ethanol for higher food prices. The advertisement can be viewed at www.growthenergy.org/Growth_Energy_ad3.pdf

In a recent interview, Secretary Shafer responded to a reporter’s question about GMA’s claims about ethanol in light of falling commodity prices and said that GMA had “no credibility.” He indicated that the GMA is trying to justify the increased costs and the increased profits they are making at the expense of the ethanol industry.

What is GMA’s response to the Secretary’s comments that the GMA has been using false attacks against ethanol as a primary factor behind higher food prices? Scott Openshaw, director of communications, GMA, www.gmaonline.org, responded:

USDA has said that ethanol production is responsible for about 30% of the increase in corn prices and has pointed to the fact that since 2006, 50% of the increase in global demand for all grains came from U.S. corn ethanol production.

As GMA has said from day one, there are many factors contributing to the sharp increase in U.S. and global food prices--including increasing global food demand, export and other restrictions, adverse weather in some countries, commodity speculation and higher energy prices--but a significant new factor and the only factor affecting food and feed prices that is under the control of Congress is the food-to fuel mandates and subsidies diverting food into fuel production.

We are calling on Congress to revisit and reconsider that policy. Perhaps most importantly, until Congress enacts bold policy to facilitate the rapid development and delivery of second generation biofuels that don’t pit our energy needs against our food and feed needs, the unprecedented volatility we’ve experienced in commodity prices will only continue.

GMA is not alone in these concerns, and in fact has joined a chorus of voices that includes three Nobel Prize winning economists, the World Bank, the IMF, the United Nations, academia, nearly every major editorial board in the United States, and dozens of organizations representing the livestock sector, the environment, food companies, restaurants, and taxpayers.

Now that corn has dropped to less than $3.50 per bushel, why haven’t food prices dropped?

Just as food companies absorbed the increasing prices since 2006 and were slow to raise prices, the full extent of increased costs sustained at the beginning of 2008 have not yet worked their way through the system. Furthermore, we expect prices to rise again in the next few months as supply and demand takes over and the ethanol mandates increase again.

Yes current gas prices are down, but commodity prices continue to be high and volatile. USDA and most economists are forecasting food inflation to continue up next year anywhere from 4 to 9 percent. Even after recent declines, farm-level corn and soybean prices have more than doubled since 2005/06. Retail food costs continue to reflect record commodity prices and volatility. Again, until Congress enacts bold policy to facilitate the rapid development and delivery of second generation biofuels that don’t pit our energy needs against our food and feed needs, the unprecedented volatility we’ve experienced in commodity prices will only continue.

Does GMA still support eliminating subsidies for ethanol?

GMA continues to support shifting subsidies away from corn ethanol and increasing investment in other types of biofuels from non-food sources. In fact, our proposals to reduce or eliminate the corn ethanol subsidy (which is actually paid to gasoline refiners) would actually increase the investment in cellulosic ethanol under existing law. Taxpayer money could be better spent accelerating development of alternative fuels or combating hunger.

If such subsidies are eliminated, the research development of cellulosic ethanol, a logical progression from corn ethanol, could be adversely impacted or even halted. What is GMA’s stance on this?

Corn ethanol has been receiving taxpayer subsidies for more than 30 years--presently to the tune of $5 billion per year. It’s time that money was shifted from a mature corn ethanol industry to be invested in second generation fuels that don’t pit our nation’s energy needs against America’s food and feed needs. Again, our proposals to reduce or eliminate the corn ethanol subsidy (which is actually paid to gasoline refiners) would actually increase the investment in cellulosic ethanol under existing law.

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