Food prices could derail the ethanol bandwagon

Debate rages about the downstream impact of ethanol demand on food prices

By Dave Hannon -- Purchasing, 4/28/2008 12:47:00 PM

In the wake of rapidly increasing food prices, some states, politicians and food industry players are looking to rescind measures aimed at encouraging production of corn-based ethanol.

Most recently, news broke this week that Missouri’s considering rolling back an ethanol-friendly law that mandates gasoline in the state be 10% ethanol. The goal was to make the state more Green, while encouraging corn growth. "There certainly are some questions on the ethanol issue that I believe we didn't delve into deep enough," said Neal St. Onge, a Missouri state representative who chairs the house transportation committee.

Missouri’s move comes only days after Texas Governor Rick Perry asked the federal government for a 50% waiver from the federal renewable fuel standard (RFS) mandate for ethanol produced from grain.

In a statement released last week, Perry said “We appreciate the good intentions behind the push for renewable fuels…There are multiple factors contributing to our skyrocketing grocery prices, but a waiver of renewable fuels levels is the best, quickest way to reduce those costs before permanent damage is done.”

Perry pointed out that in 2007, 25% of the U.S. corn crop was diverted to produce ethanol, and that 30-35% will be diverted in 2008, leaving less corn for food and cattle feed. 

But it’s not just politicians reacting to the sky-high prices. Dick Bond, Tyson Food's president and CEO, said this week that Congress should reduce or drop a federal tax subsidy and end import tariffs on sugar-based ethanol after his company has been plagued by high corn-based feed prices.

However, not everyone is convinced there’s a direct correlation between increased ethanol production and higher corn prices. A study released last week by Texas A&M University blames higher energy and oil prices for higher food prices, and not the increase in corn prices. The study goes as far as to say “Relaxing the renewable fuel standards does not result in significantly lower corn prices. This is due to the ethanol infrastructure already in place and the generally positive economics for the industry.”

WHAT DO YOU THINK?

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